Today I heard from a friend whom I help with his investments. Like just about everyone I help with investing, or, more properly, just about everyone who follows the advice I give on investing, he follows a balanced approach, with some bonds, some stocks, and some cash. The percentages of course, vary with the individual’s goals and risk tolerances, but the basic approach is the same.
With the Dow and the S&P setting new records on virtually a daily basis, my friend wishes he had a greater percentage of his assets in stocks, and he is not alone. I pointed out to him that everyone wishes he had more in the market when the market is heading up…and everyone wishes he had less in the market when the market is on the way down. That is one of those eternal truths. But, more importantly, and more true, for those who are honest with themselves, the wish to have less in the market on the way down is far stronger than the wish to have more in the market on the way up. Opportunity cost is an important concept in finance, and we can talk about opportunity costs until we are blue in the face. But losing money is a lot more painful than not making money.
When we find ourselves wishing we had more in the market on the way up and less in the market on the way down, we are only being human. Further, unless we have all or none of our money in stocks, that we have those wishes tells us we are doing something right in our investing approach.
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