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Measuring a <strike>Loss</strike> Gain

Scott’s video highlights just one of the many potential distractions that keep investors from focusing on the long term. Whether you are investing for the next 10, 20, 30, 50, or 80 years, your time frame for long-term investing will involve many ups and downs. Each time you focus on a given month. a given year, or a particular current event, you risk becoming more short-term focused, overreacting, and making an emotional mistake with your money.

In “Measuring Gains and Losses”, Scott talks about the tendency for investors to measure their performance against some sort of “high point” in the account. When the stock market declined in 2008, many investors focused on the amount their account had declined since October 2007–a high point–instead of focusing on the long-term growth they had experienced in their portfolio over a multitude of years. Many viewed the decline as a loss, but as time proved out it only became a loss for those who sold at the lows of the market.

It’s hard to be a diversified long-term investor. What works one year, may not work the next. The market goes through ups and downs on a monthly and even daily basis. It’s important to not read too much into what is going on today and maintain your focus on the long term.

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