MarketPsych: How to Manage Fear and Build Your Investor Identity

Preface

You may not realize it, but you are on a dangerous journey—the life-long process of wealth accumulation. Your destination is to establish financial freedom and security so that you (and your loved ones) can enjoy the quality of life you have always wanted. But make no mistake, you have an enemy that doesn't want you to get there. The enemy is "the market," and it is engaged in a covert psychological war designed to subvert you at every opportunity. The market probes for emotional weak spots and exploits them, scaring you out when the worst is over, luring you in when the gains have been made, baiting you into chasing fool's gold, or convincing you to it 's okay to perpetually "start tomorrow."

Sure, the journey seems easy enough. Buy low, sell high, and all that. The market goes up over time. Just put your money away, and you'll get to where you want to go. If only it were that easy. Investing in the market more closely resembles a crooked carnival game in which you throw a softball at a stack of milk bottles for a dollar. "It's so easy! So simple, a child could do it. Step right up!" The deception is the simplicity. The game is designed for you to lose.

Don't believe us? From 1989 through 2008, the S&P 500 Index had a 5.51 percent average annual return after inflation. Looks fine, you say. But what did the average equities investor get as an average annual return, postinflation, during that same 20-year period? Negative 0.97 percent per year. (We told you the market was out ...