With share markets volatile again, are you having second thought about investing in shares? Given the worries around the pandemic, inflation, and economy, it’s worth reflecting on a key investment principle.
Legendary investor Jack Bogle, one of the founders of indexing, argued for an approach based on simplicity and common sense. Bogle set out 10 basic rules for investing. One of them— There’s No Escaping Risk — is worth remembering at these times.
When you decide to put your savings to work to build long term wealth, it’s not a question of whether to take risks or not, it’s a question of what kind of risk you want to take.
If you invest in a bank deposit, although your investment is very stable, with interest rate close to zero, your money will go backward in terms of buying power because of inflation.
If you invest in shares, your investment will fluctuate a lot due to the constantly changing market’s view of the future. The key is to learn to live with uncertainties which are the source of shares’ premium returns (compared to bank deposit) over the long term.
Investors who try to time their share investments to economic signals are looking at market history through a very narrow lens. The ultimate size of your nest egg won’t be determined by one week, one month, or even one year.
Remember, this is what we sign up for when we invest in shares: short-term temporary declines are the price we pay to participate in its long-term permanent uptrend.