Investment Metaphor #9: Truthiness

Jul 13

Jul 13 Investment Metaphor #9: Truthiness

Almost everyone is now familiar with the term "truthiness," which was coined by Stephen Colbert to describe a fallacious appeal to emotion in political rhetoric/discourse. If you will allow me to put my philosophy-teacher-hat on for a moment, it should go without saying that an emotional appeal constitutes a logical fallacy in most types of argumentation. The same is true about investing. Many investors play the stock market as day-traders, buying and selling stocks on little more than a gut intuition about which stocks will rise in the future and which will fall. It goes also goes without saying that these are often the very same investors who lose their money in the stock market and would have been better off throwing their money in a checking account.

Just as truthiness should be avoided in politics, so should intuitive investing be avoided when choosing your investment strategy. Find a good long term investment plan and stick to it. This amounts to little more than picking diversified investments (such as Index ETFs), regularly investing a portion of your income, and ignoring the hype associated with minor, short-term market fluctuations. In twenty or thirty years those minor ups and downs will barely be perceptible, and you will have made yourself a nice retirement sum.

Don't give in to truthiness, and definitely don't trust your amateur instincts to guide your investments. Just pick a good lazy portfolio (any one of these sample portfolios would be just fine for a buy-and-hold long-term investment portfolio) and let the power of compounding work its magic. Keep the faith, my faithful readers, and happy investing!