How can psychology be used as an excuse?
Investing requires a foundation in math, logic, and a solid understanding of how markets actually work.
The argument that selling shares—especially in a down market—doesn't really hold up.
Below is a story. The story is about stocks to keep it simple.
The Story of Two Families and Their Stock Choices
In a quiet suburban street in the U.S., two families lived side by side. Both families had similar lifestyles and expenses. The husbands worked for the same company, and both wives were nurses. Each family had two kids, and in many ways, their lives mirrored each other—except when it came to investing.
Family A: The high-tech (or STEM) Enthusiasts
Family A was always ahead of the curve. They believed in investing in products and companies they personally used and loved, especially those that seemed to explode in popularity. Back in the early 2000s, they noticed a shift at work. The old monitors with green text were being replaced, and they were now using Microsoft products. Impressed by their efficiency, they decided to buy Microsoft stock (MSFT).
As the years went on, Family A became enamored with Apple products for their sleek design, simplicity, and reliability. They were early adopters of iPods, then iPhones, and eventually, they bought stock in Apple, watching the company’s explosive growth. They didn’t stop there—when Netflix became their go-to entertainment, they couldn’t resist buying shares. Then came Amazon, a company they loved for its convenience and service. They bought in again.
At the same time, they loved and used Google Maps and their search engine FOR FREE. They also switched to streaming with YouTube TV. Of course, they owned the stock too
By the time Family A was ready to retire, their portfolio had grown significantly—thanks to their investments in the likes of Microsoft, Google, Apple, Netflix, and Amazon. They had retired 10 years earlier than they originally planned because their investments had soared. Their portfolio had outperformed expectations, giving them the freedom to retire comfortably. At retirement, they needed a paycheck replacement, but they understood there was little difference between selling shares or receiving dividends. The key was to keep their portfolio steady and ride the market’s inevitable volatility. They didn’t try to time the market, avoid downturns, or buy the latest hot stock—they simply held on for the long haul.
But there was one problem at retirement: the decision-making process. They didn’t want to be involved in picking which stocks to sell and when. They didn’t want to worry about managing individual positions.
So, Family A made a simple, efficient choice. They took part of their money and invested it in FXAIX=SP500, which tracked the overall market. In just two minutes, they set up an automatic sell order for $8,000 (pick another number) to be withdrawn on the first of each month—every month, without fail. They didn’t have to worry about deciding what to sell; the decision was automated, and the plan was set to last for years.
Years passed, and at age 75, Family A had become tired of managing individual stocks. Following the advice of Warren Buffett, they shifted most of their wealth into 90% VOO (S&P 500 ETF) and 10% VGSH (a short-term government bond ETF)—a simple, low-maintenance, and diversified portfolio. They lived longer, without the stress of constantly managing their investments. The financial freedom allowed them a comfortable, worry-free retirement.
Family B: The Dividend Loyalists
In contrast, Family B was loyal to the old-school approach. They believed in investing in well-established, “stable” companies—the ones that paid reliable dividends. This was a strategy that had worked well before the tech revolution, and they stuck to it. Great companies, they thought, paid dividends as proof of their strong business foundations.
While Family A was riding the tech wave, Family B stayed the course, investing in companies that had proven track records but weren’t always at the forefront of innovation. They believed in stability and income generation through dividends, but their portfolio didn’t grow as rapidly as Family A’s. They were content, but over the years, they watched as their neighbors retired earlier and lived comfortably.
The Price of Stability
By the time Family B was ready to retire, they had to work 10 more years than Family A. The pressure of working longer took a toll on them, and even when they finally stopped working, they didn’t have the same financial cushion. Their portfolio had provided some income, but it had lagged behind Family A’s growth. Without the exponential growth of tech stocks, they struggled to keep up with inflation and rising healthcare costs.
The Takeaway
Family A’s willingness to embrace growth stocks, particularly in the tech sector, led to a much larger portfolio by the time of retirement. Their decision to automate their withdrawals and focus on low-maintenance, diversified investing allowed them to live a comfortable, stress-free retirement. In contrast, Family B’s focus on dividends and old guard companies led to a slower-growing portfolio, leaving them working longer than they had hoped.
The moral of the story? Embrace change, automate when you can, and focus on long-term growth. While dividends are important, they aren't better in the long term.
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On the other hand, I never believed in buy and hold and LT investing. I never invested based on the past.
I invested based on what works lately.
I invested in LC tilting growth during 1995-2000 and after 2010. During 2000-10 I was in value, SC, and international.
The $64K question is how to do it. This is where you need to spend your time and efforts.
