Besides the concrete steps outlined above, there are psychological barriers that need to be addressed. Many investors fall into two extremes when it comes to their mindset, either too aggressive or too timid. Both need to be reminded that investing and gambling are different.
In gambling, the odds are stacked against you over the long run. And some investment practices and products approach gambling. Day-trading to time short-term stock movements is notoriously difficult over the long run. And the more exotic investments and strategies such as levered and inverse exchange-traded funds are designed for short-term trading, not long-term investing.
With a traditional balanced portfolio, the odds are about even on any given day that its value will go up or down, but the odds are stacked in your favor over the long run, as investors have been historically “paid” for the risk of price fluctuations in stocks and bonds.1
Of course, all the appropriate caveats apply. There are absolutely no guarantees in investing. Markets will go through their normal up-and-down cycles and there will be times when your portfolio will decrease in value. That’s why it’s important to stick to your plan, remain disciplined and re-evaluate when your circumstances change.
My father passed away 20 years ago; however, his legacy lives on. His stocks helped with the down payment on my first home, and they are still providing dividends that help provide a comfortable retirement for my mother.
Discipline in investing has a lasting impact.
This commentary by James Martielli, head of Investment & Trading Services, originally appeared on Fortune.