Why is Investing Hard? Ways to Make it Simpler
Sharing something we have built
There are about 55,000 stocks listed globally (end of 2023).
As of May 2024, there were about 140,000 investment funds and roughly 12,000 ETFs (exchange-traded funds) worldwide.
The sheer number of investment choices can make one’s head spin!
According to a survey by Charles Schwab, on average participants spend twice the time researching for a vacation or car than choosing their 401(k) plan options (considering there are around 5,000 car brands in the world)!
Moreover, security prices are never stagnant, and economic policies, geopolitics, investor sentiment, natural disasters, pandemics, etc. can move the market every minute, often quite unexpectedly.
Predicting the market is futile. For example, at the end of 2022, 85% of economists surveyed in one poll predicted a recession in 2023, which did not happen.
Another example is earnings announcements. AI has been the hottest theme in the stock market, with 5 out of the Magnificent 7 stocks beating the S&P 500 in 2024 (as of 11/13/24) with the group returning 76% versus 25% in the S&P 500 in 2023.
Yet, despite companies raising their growth outlook and revenue and earnings beating the market expectations, stock prices dropped as soon as management discussed they would spend more on capital expenditure on AI than expected—sentiment and what expectations have already been baked into the price mattered more than actual results or management outlook.
Investors’ behaviour can also cause their returns to be much worse than the market. Dalbar Investor Behaviour Analysis showed that “the Average Equity Investor earned 5.5% less than the S&P 500 in 2023, the 3rd largest investor gap in the last 10 years.“
Reason: emotions hurt returns. “Investors tend to sell out of investments during downturns and miss out on rebounds. The report illustrates the importance of a long-term investment strategy.”
Take a look at the chart below by Creative Planning (sourced from Crew). In the past 85 years, the rolling 10-year annualized total returns of the S&P 500 stocks were positive 94% of the time except for the period ending in the late 1930s and the Great Financial Crisis of 2008-2009 when stocks also underperformed bonds. [I share your frustration had you bought stocks at the peak of 2020 so starting valuation matters a lot before you buy.]
Other reasons that investing can be hard include a lack of financial education in the curriculum, complex financial jargon and products, a negative attitude towards money in the family, finding it hard to talk about money, lack of tolerance for (the possibility of) substantial losses, etc.
Achieving investment success is hard (for everyone), said Charlie Munger in the Acquired Podcast (thanks to Ben Carlson’s piece for sharing.)
…everybody that had unusually good results… almost everything has three things: They’re very intelligent, they worked very hard, and they were very lucky. It takes all three to get them on this list of the super successful. How can you arrange to have just […] good luck? The answer is you can start early and keep trying for a long time, and maybe you’ll get one or two.
~ Charlie Munger in the Acquired Podcast
It is truly a humbling experience.
However, there are ways to make investing much less daunting than it should be.
My business partner and mentor, Simon, likes to say:
Investing is easy when you don’t know what you are doing.
Warren Buffett also said:
Investing is simple, but not easy. The key is to have patience and discipline.
Let’s expand on these insights.
Utilizing a Disciplined Investment Framework and Robust Tools
Successful investing starts with a clear objective or strategy, an understanding of individual circumstances including capacity and risk tolerance, patience (versus knee-jerk reactions), a set of tools to value and rank investment opportunities and then a way to put them all together—in an optimal and diversified manner.
Each person has to play the game given his own marginal utility considerations and in a way that takes into account his own psychology. If losses are going to make you miserable – and some losses are inevitable – you might be wise to utilize a very conservative patterns of investment and saving all your life. So you have to adapt your strategy to your own nature and your own talents. I don’t think there’s a one-size-fits-all investment strategy that I can give you.
~ Damn Right by Janet Lowe quoting Charlie Munger
Having run investment portfolios for decades across global markets and mandates, my business partner and I have been working towards this mission in the past few years, building a digital portfolio construction and global asset allocation tool that can help anyone create a highly personalized and diversified portfolio that uniquely tailors to their goals and risk appetite, leveraging global investment opportunities, a robust valuation algorithm, an industry-best portfolio construction methodology, and advanced risk analytics.
Three market trends converge to convince us this is the right time for an innovative tool:
(1) The rise of Exchange-Traded Funds (ETFs) and passive investing: Giving investors tax-efficient and low-cost exposure to diverse investments globally (instead of mutual and private funds costing anywhere from 50bp to 2 per cent (or more) per annum in fees.)
(2) Technology advancements and digital transformation: Harnessing large data sets, instant communication, computing and software technology, cloud platforms, and AI/ML for smart investing, moving beyond clunky, hard-to-explain, and non-interactive spreadsheets.
(3) The underperformance of active managers: 90% of active fund managers underperforming their benchmarks over 15 years as the market has become too efficient to beat. What if there is a tool that combines the best of both worlds: efficiency and cost-effectiveness of passive strategies with the personalization of active management?
The investment portfolio construction tool we have created is intuitive and simple to use — with just 5 easy steps.
Best of all, it is free!
(The Enterprise/full version is created for finance professionals, registered advisors, and institutional investors.)
I invite you to be our guest, try the tool*, and start transforming your investment journey—you are the driver, we provide the fuel, engine, and car!
Let me know what you think.
Happy long-term investing!
* (User requires registration to see final portfolio and for us to track interest, but we will never sell your information!)
For more stories on investing, wealth, wellness, productivity, and conversations with leading female investors, visit my website and join my community!
Thank you so much!
Thanks @Enrique González-Herrero for restacking!!
Thanks for sharing my post @Daily Compounder!!