The Bucket Plan® by Jason L Smith

Author:Jason L Smith
Language: eng
Format: epub
ISBN: 9781626344617
Publisher: Greenleaf Book Group Press
Published: 2017-12-15T00:00:00+00:00

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As you can see, the average investor’s rate of return of 2.11 percent (the final bar) is less than that of the other classes; in the case of stocks, it’s substantially less. Not only that, but the average investor didn’t even earn enough to outpace inflation.

This is the unfortunate reality. When the average investor and/or their advisor tries to predict the market, they’re competing against the collective knowledge of millions of other buyers and sellers. That kind of guessing game is not stacked in your favor. A better approach is to harness that collective wisdom and let the markets work for you over the long term. Having a Bucket Plan in place allows you to do that in the Later bucket with confidence.

Behavior 2: Many investors panic during times of volatility, selling their holdings and taking losses, inevitably sitting on the sidelines and missing the recovery.

The financial crisis of late 2008 caused panic-stricken investors to flee stocks and move to cash . . . often at the urging of their equally panicky financial advisors. Years later, record amounts of cash remained on the sidelines as an outcome of investor paralysis: people were afraid to reenter the market even though it may have been in their long-term best interests to do so. Consequently, those investors missed out on one of the biggest market rallies in history. They sold at the worst possible time and never recovered.The fear of loss, coupled with the tendency to procrastinate, causes this behavior to be catastrophic to an investor’s long-term financial plan. The media fuels this behavior. During times of volatility, the media makes people and their advisors even more fearful, shouting that there is no end in sight and that the markets are melting down. In times of prosperity, they make predictions of funds or investments viewers need to buy, such as the next hot tech stock or mutual fund. By sheer luck, some of these predictions might pay off, but they seem to do more harm than good for the individual investor.

Behavior 3: Many investors and advisors let the possibility of bad surprises impact them more than the potential for good ones.

Over fifty years ago, Nobel Laureate Paul Samuelson offered one of his MIT colleagues a bet on a coin flip during lunch.13 If the colleague chose heads and the coin landed on heads, he would win $200. But if he called heads and the coin landed on tails, he would lose $100. Samuelson’s colleague rejected the bet. But why? Would you have gambled your money or declined?

Samuelson’s colleague offered the following reason for rejecting the bet: “I won’t bet because I would feel the $100 loss more than the $200 gain.

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