Happy Saturday morning all!
Boy, it sure feels good to kick off the weekend – especially as there’s a mini-heatwave coming our way in London.
But notwithstanding the excellent weather, your mind may still be preoccupied with the ongoing carnage in the stock market.
I can’t blame you. Losses sting – and losses of the magnitude seen this week sting hard.
There isn’t anything you, I, or anyone else can do about the stock market.
There is, however, a great mental hack that can help you through countless unpleasant situations like this one.
It’s called the Rule of 3.
Anytime something bad happens, ask yourself:
- Will I still be as upset about it in 3 months?
- How about in 3 years?
- And what about in 3 decades?
So here’s the deal:
In 3 months’ time, one of two things will happen:
The market could stabilize or recover, in which case this week’s drop won’t bother you as much, if at all.
Alternatively, the market could drop even more, in which case the current losses will pale in comparison!
I am sadly old enough to have lived through both the dot-com bubble, the GFC, and multiple other mini-crises.
Every time, the same thing happens: investors walk around shell-shocked, people moan and groan, and then… things just work out.
This time won’t be any different.
The Algebra of Wealth
The other observation I wanted to make here is that notwithstanding whatever goes on in the markets, the math of getting rich hasn’t changed:
- Maximize your earnings (this is how)
- Grow the gap between income and expenses
- Invest the difference in productive assets like equities and real estate
It’s a simple formula that has worked incredibly well for hundreds of years – and will continue to work equally well going forward.
Sure, there are periods when it works exceptionally well, thanks to the tailwind of a booming economy and rising markets.
At other times, it’s slightly choppier sailing and it does take a bit longer to reach your goals.
But have no doubt – reach your goals you will.
Have a wonderful Saturday all – and enjoy the top-quality personal finance article below:
From Yours Truly
It Gets Harder From Here – Michael Batnick
The Rich and The Wealthy – Morgan Housel
A Stock Is Not An Index – Dollars and Data
Why Does The Stock Market Go Up Over The Long Term? – Ben Carlson
Inflation Hedges: What Does And Doesn’t Work – Monevator (excellent as always, despite the somewhat depressing conclusion)
How The Fed Lost The Plot – Financial Times
We Are All Here To Feel A Little Stress – Jared Dillian
Financial Independence Is Not The Holy Grail – Physician on FIRE
The Paradox of Choice – Jack Raines
Have a wonderful weekend all!
About Banker On Fire
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Banker On FIRE is an M&A (mergers and acquisitions) investment banker. I am passionate about capital markets, behavioural economics, financial independence, and living the best life possible.
Find out more about me and this blog here.
If you are new to investing, here is a good place to start.
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