80% of people get the first step of investing wrong. They’re busy buying and selling all day, with no time to stop and think about why their investing keeps failing and what to do about it.
Are you like I used to be? When investing, you’ve had this experience: You worked hard for years and finally saved some money. But as soon as you enter the market, you buy, buy, buy, and simply can’t stop. The result is small gains and big losses. After three to five years, there’s less and less money in your pocket. If you’d known this would happen, you might as well have put it in the bank.
Why does this happen? Because before investing, we didn’t think through a very simple question: What investment return is actually appropriate for me? This requires a benchmark. For example, when we took exams in school, 60 was the passing line. Your investing should also have its own passing line. In Buffett’s view, that passing line is the S&P 500 index fund. The S&P 500 ETF’s annualized compound return over the past 20 years is 9%. Compare your investment returns over the past 3, 5, or even 10-plus years with the S&P 500, and you’ll know whether your investing has passed.
If it hasn’t passed, that’s normal. Duan Yongping said long ago that on the road of investing, 80% of participants can’t beat the market. If you bought actively managed funds, you also pay about 2% in management fees each year. You might think you’re only losing 22% of gains, but after 40 years, compounded annually, you’ll lose 52% of gains. Don’t believe it? Use the “Compound Awakening” mini-program to calculate it and you’ll see.
In Buffett’s letters to shareholders, he repeatedly mentioned that for most ordinary investors, the best and most worry-free path is to directly buy low-cost index funds and hold them long term.
Investing is not about being busy buying and selling all day. Passing is the first step!