{"id":3870,"date":"2013-04-18T13:39:21","date_gmt":"2013-04-18T20:39:21","guid":{"rendered":"http:\/\/canary.kcprod.info/blog\/?p=3870"},"modified":"2022-01-11T17:12:43","modified_gmt":"2022-01-12T01:12:43","slug":"young-investors-timing-market","status":"publish","type":"post","link":"https:\/\/canary.kcprod.info/blog\/young-investors-timing-market\/","title":{"rendered":"Burt Malkiel’s Rule for Young Investors: Save Regularly"},"content":{"rendered":"

W<\/span>ealthfront CIO and Princeton emeritus economics professor Burt Malkiel sat down with us a few weeks ago to talk about two of his favorite topics: perseverance and patience. In other words, invest regularly, and stay invested.<\/p>\n

Burt cites a famous essay by Warren Buffett. Buffett uses it in part to explain his practice of placing big bets in good companies when the market is headed down, and then waiting for the stock prices to turn around. That\u2019s beyond the scope of non-professionals. But there is a way young investors can benefit from the same idea. If you persevere by investing regularly, even in markets that don\u2019t look promising, you are more likely to reap a large reward over time than if you tried to take advantage of a rising market.<\/p>\n

Who wins? The tortoise, not the hare.<\/p>\n

Please enjoy the Q&A.<\/p>\n

Get Into The Habit Of Saving And Investing<\/h2>\n

I think one of the biggest mistakes that people make, particularly young people, is to say, \u201cYou know, I\u2019m never going to get old. You know, investing is for people in their 40s and 50s and 60s.\u201d<\/p>\n

\n

And it\u2019s a mistake because you don\u2019t get into the habit of saving. Also, you don\u2019t get the advantage of compounding. A dollar invested early in life is much more important than the dollar you save later in life.<\/p>\n<\/div>\n

Start saving regularly. People say, \u201cOkay, I\u2019ll start a retirement plan. I\u2019ll put money in periodically. But then they get into a situation when it looks like the sky is falling, and they stop.\u201d<\/p>\n

And that\u2019s what gets you. So, I would say, \u201cStart saving early and save regularly. You will do very, very well over time and likely have a very happy retirement when the time comes.”<\/p>\n

Stay Invested<\/h2>\n

One of the things that we know from our study of behavioral finance is that unfortunately when we\u2019ve had bad markets, and when we\u2019ve had a lot of volatility, that people tend to not put money into the markets. In fact, money was pulled out dramatically in 2008 and 2009 when people were thinking the world was going to come to an end.<\/p>\n

To illustrate the folly of doing this, I love this essay by Warren Buffett:<\/p>\n

\u201cLet\u2019s do the following quiz. Suppose you\u2019re going to eat hamburgers all through your life. And you\u2019re going to be buying them over the next five years. Do you want the price of hamburgers to go up or down?\u201d<\/p>\n

I\u2019m aware that the question answers itself. You\u2019re going to be buying hamburgers, you want the price to go down.<\/p>\n

\u201cOkay, suppose you\u2019re going to be buying automobiles over the next five years? Do you want the price of automobiles to go up or down (And you are not an automobile manufacturer!)\u201d<\/p>\n

And, you say, \u201cWell, naturally I want the price to go down.\u201d<\/p>\n

And then Buffet says: \u201cNow the final exam. Suppose you\u2019re going to be investing for the next several years. Do you want the price of the stocks to go up or down?<\/p>\n

And everybody gets this one wrong! It\u2019s only people who are withdrawing in the near future who want stocks to go up!<\/p>\n

That\u2019s the key lesson for young people. Start a program and don\u2019t worry if the prices go down in the short-term. If you continue to invest through the bad market you\u2019re going to be even better off over the long run.<\/p>\n

We know that people get spooked. And I think the advantage of having someone capable managing your money for you, like Wealthfront, is having people think, \u201cYup, things haven\u2019t looked good, but we\u2019ve got a bunch of professionals who know what they\u2019re doing. They\u2019re going to have my back, and they\u2019re not going to charge me an arm and a leg.\u201d<\/p>\n

That will take a lot of the perceived risk out of this.<\/p>\n

Keep Your Emotions In Check<\/h2>\n

I am afraid to say that emotion usually plays a more negative role than a positive role. Because the evidence is just so clear what people do wrong. They put money in at the wrong time. They take it out at the wrong time.<\/p>\n

They tend to buy the hot mutual fund. Interestingly enough, when the money was going into the market, in the first quarter of 2000, which was the height of the Internet bubble, where was it going? It was going into Internet stock funds.<\/p>\n

There were many other equity funds that held the AT&Ts of the world, that were very, very much out of favor. People were operating in this sort of \u201cget rich quick\u201d environment. They saw one Internet stock after another double in price. We saw people putting \u2018.com\u2019 after their name, and the price would soar.<\/p>\n

I\u2019m afraid that emotion is much more likely to play a negative role in investing than a positive role. The market as a whole over the long run has had a reasonable rate of return. But individuals don\u2019t make the market return because their money goes in at the wrong time and out at the wrong time. \u2026 And that\u2019s largely because of emotion.<\/p>\n

Stay In It For The Long Run<\/h2>\n

It\u2019s exciting to win, but it\u2019s slow and steady and not getting off track that wins in the long run. And don\u2019t get too excited about some short-run win, because that might get you into trouble.<\/p>\n","protected":false},"excerpt":{"rendered":"

Wealthfront CIO and Princeton emeritus economics professor Burt Malkiel sat down with us a few weeks ago to talk about two of his favorite topics: perseverance and patience. In other words, invest regularly, and stay invested. Burt cites a famous essay by Warren Buffett. Buffett uses it in part to explain his practice of placing […]<\/p>\n","protected":false},"author":43,"featured_media":7235,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"footnotes":""},"categories":[1282],"tags":[1629,1301,1600],"coauthors":[84],"class_list":["post-3870","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-investing","tag-dollar-cost-averaging","tag-investing-mistakes","tag-young-investors"],"acf":[],"yoast_head":"\nBurt Malkiel's Rule for Young Investors: Save Regularly<\/title>\n<meta name=\"description\" content=\"Burt Malkiel's advice to young investors - save early and don't time the market. 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