When working harder can be bad for your wealth

From Retirement Now Newsletter August 19th 2021

True Story:

A few years ago my family and I went hiking in the Smokey Mountains, which wasn’t our original intent. We had started out just driving through the park sightseeing, then saw a sign for a waterfall. When we pulled over and got out it said Abrams Falls was a 2.5 mile walk. Too long for us, so we just decided to stretch our legs and walk a little down the path and see the scenary on the trail. Each of us had a kid strapped on our backs, while the oldest two kids walked on their own.

We kept walking and every time we thought about heading back we changed our minds, because we had come so far. And plenty of the hikers that were on the return journey kept telling us the falls was not much further.

Long story short…

We reached the falls (they were much further by the way) and they weren’t that great anyway, then had to walk back 2.5 miles to get back to the van.

A few years later we did another hike in the Smokies to Laurel Falls. Much shorter hike and much prettier falls.

Moral of the story?

A couple actually.

Sometimes working harder does not give you a better reward, not just on which hike you take to which specific waterfall, but also when it comes to investing.

People that obsess over their investments and work hard at watching CNBC and reading the latest news of markets, are much more likely to make short-term trades way more than someone who simply ignores the daily noise.

And short-term trading can often times have disastrous results, very dangerous for someone near or in retirement who need those funds to last the rest of their life.

Consider this:

If the markets respond to news, and the news is unpredictable, then at the very least there is a huge component in the market performance that is unpredictable, at least in the short-run.

Or what about the guys on tv recommending to buy and sell stocks?

If they knew where the market was going short-term, why in the world would they broadcast that precious, money-making, fortune-building, information to everyone?

Yet many people listen to what they say and put in the work to implement their recommended trades.

Working harder and getting worse results flies in the face of everything we’ve been taught and experienced.

Wanna do better on a test? Study hard.

Wanna get better at your job so you can get a promotion? Work hard?

Wanna get a date? Put in the effort to make it happen.

But with investing, it’s different.

Actually, I should say with short-term speculative investing it’s different.

There’s so much data being generated everyday that drives short-term market performance. Not to mention constant news stories, politically unforeseen events, health events, even weather.

Any of that unpredictable data could affect the market.

It’s very random in the short-term. Very unpredictable.

Which is why those short-term trades could almost be compared to bets.

And you can’t really get better at gambling games. You aren’t going to get any better at roulette by practicing it more.

What’s more is that short-term trading makes us think we can get better at it. Unlike a casino game where we know it’s all luck.

And for a lot of people nearing retirement, “getting better at it” in regards to investing often times looks less like trying to get double digit gains and more like trying to prevent losses in the short-term…

…by trying to out guess the next downturn.

Anyway, the point is this.

I believe that retirees who adopt a long-term investing approach that helps them generate income from their portfolio in retirement will do better than the short-term traders.

I also believe that those who do this will be ahead of the curve so to speak.

I can’t tell you what the markets are going to do in the short run. But as for helping implement a long-term holistic investment approach with the goal of not only preserving a portfolio but also having it generate income to last throughout the rest of retirement, that’s part of what I do.

Hop on my calendar if you’d like to have a 20 minute phone chat about it for your own retirement.