Over the weekend I was thinking about why vast majority of romantic relationships fail and how this is similar to failure with investing. As with all romantic relationships many go into with the up most optimism. Thoughts of he or she is the one I will start a family with and spend the rest of my life enters one's mind. Investing similar euphoric thoughts enters one's mind such as I will be rich in a short amount of time, I can quit my job, I will live the high life such as purchasing fancy cars, large homes, exotic vacations etc etc. However, many fail to realize that relationships takes a lot of work is filled with arguments and competing interests. Investing has similar characteristics.
Arguments can be thought of investment volatility one experience's in their portfolio. Ups and downs happen during the day to day experience within a relationship. Just like the stock market, prices may swing in any direction at anytime. A healthy approach to this volatility is to expect it. Just like expecting your significant other will have a bad day. This is healthy and quite normal.
Another reason for failure within relationships and investing is irrational expectations. Some people may believe relationships are like fairy tales, should always be fun and happy. In the investing world some people manifest this as a portfolio that only goes up. When adversity hits, some people end the relationship or in the case of investing sell at the hint of trouble.
Another reason is short term thinking. Some relationships maybe based taking advantage of your partner whether it be sex, free vacations or avoid being lonely. In the investing world, this can manifest itself as buying garbage assets due to terrible fundamentals. The end result is a relationship and a portfolio that crashes and burns which may lead to unnecessary psychological damaged.
The best approach in my opinion is to have a long term approach. Long term relationships both individuals are invested and committed to do the work necessary to grow their relationship. Such individuals can weather the ups and downs of their relationship knowing full well these up and downs are short term in nature. Hard work, communications and rational expectations, both individuals may succeed in having a wonderful life.
The same applies to investing. If you have rational expectations of how much wealth one can realistically generate over time you will have a good chance of achieving your goal. Wealth is generated over the long term by ignoring the ups and downs of the market. Wealth is generated by carefully reviewing your investments understanding their purpose and role in your portfolio. Be realistic, understand each investment's role in your portfolio, have a long term goal and you will increase your odds of success.
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