DALBAR — the independent investment research firm everyone loves to hate — did a study recently and found 3 basic reasons why investors fail to achieve their long-term financial goals:
- Psychological factors — people can’t stomach losing money.
- No capital available to invest — just like it sounds. People don’t got no monies to invest.
- Capital is needed for other purposes — again, just like it sounds. People gots 99 problems and investing is just one of them. Most people end up needing money for emergencies, to pay for expenses during a layoff or disability, to fix their car (or to buy a new one), or for a bunch of other “life stuff”.
Notice something? Rate of return is not on that list.
That’s because, for the most part, rate of return is a distraction. It’s not that it’s completely irrelevant, it’s just that there are far, far more important things than how much you earn on you mutual funds.
This is why 401(k)s don’t make no sense to me. The big sales pitch for your 401(k) or IRA is “You’ll earn 12% in your mutual funds, lol!” And, every time those brokers come and talk about your retirement account, you nod your head and agree with everything they say and keep plowing money into your retirement plan.
You don’t notice the inherent problem in locking up your savings for 30 or 40 years… but your brain does.
That’s why it never feels 100% OK.
Your smartypants conscious mind keeps telling you everything will be fine.
But your stupid lizard brain keeps nagging you with silly questions like… How will you fix your car when it breaks? What will you do for hot water when your water tank takes a dump on you? Your kid’s braces cost $3,500 but your insurance only covers the first $1,500… where do you get the rest of the money? You need a down payment for a new home because you just had a baby… but where do the monies comes from? And, my personal favorite… where will you get money to live on while you’re laid off for 18 months? …you know unemployment won’t pay all your bills, right?
This is the “real life” stuff that destroys those perfect little spreadsheet plans financial planners love to make for clients.
But, what am I saying? Probably none of this applies to you.