Door Paul Snoek
Investors often get nervous about price fluctuations. Understandable. But there's no need to, if you follow a few simple rules. In this blog post, we share three practical tips for staying calm in turbulent times.
Focus on the long term.
If you want to use your invested money in the foreseeable future, price drops are obviously disastrous. Before you know it, the price of your stock investment is lower than the price you bought it at a while ago. And selling simply means a massive loss. That's not why you started investing in the first place, of course.
At Stoic, we believe that you shouldn't invest money you plan to use within the next ten years in stocks at all. Historical data tells us that it can easily take up to ten years for a potential stock market correction (a crash or recession) to recover. This means that money you can afford to miss for more than ten years can be invested in stocks, but money you need sooner shouldn't, as this poses a risk.
If you follow this rule, you can safely ignore short-term price movements. Just as you don't constantly check the balance of your savings account, you don't have to constantly check stock market prices when investing for a term longer than ten years.
It's important to invest this money in an index that represents the entire global economy: the MSCI All Country World Index. After all, no one has a crystal ball: no one can predict which stocks will perform well and which will not. It's better to spread your money invested in stocks across the entire global economy. Because while prices may fluctuate in the short term, in the long run the global economy always grows.
What you can do in the short term.
All money you will need within ten years is best invested in very low-risk bonds, such as Dutch or German government bonds. This way, you can be sure your money will still be there when you need it. Saving at a bank is also an option, but amounts above €100,000 are not protected if the bank fails — something that almost happened in 2008. For that reason, we recommend government bonds. Your money is then invested in securities that you can always trade.
Focus on what you can influence and ignore the rest.
The ancient Greek stoic philosophers already knew: there's no point in worrying about things you can't influence. Focus only on things you can. Translated into asset management, this means: we can't influence stock prices and returns, so it's best not to worry about them (see point 1). But what you can influence are the fees charged by your asset manager.
You might think that a management fee of, say, 1.50% of your invested capital is not too bad. But that's forgetting the compound interest effect: just as the value of your assets grows exponentially over a long period because you earn a return on a growing sum of money every year, costs can eat away at your assets in the opposite way. That way, a good return can still go up in smoke.
So, the facts tell us that very low costs are simply the best way to maximize returns in any situation. That's why at Stoic, we offer the lowest fees in the market. You can compare your asset manager's fees with ours here.
Last but not least: in bad times, asset managers who secretly take too much risk are always exposed. The negative returns they achieve are much more pronounced than those of managers who have their act together. Warren Buffett once described it as: "When the tide goes out, you discover who's been swimming naked." This article explains exactly how this works.
Door Freddy Forger
