source article: Michael Batnick
Humans are sometimes so illogical. When we ponder our financial situation, most people spend way more time thinking about investing than they do about spending and saving.
It should be the exact opposite, because saving and spending is something we have complete control over. We haven't any idea if our portfolio will be up or down next year, but we can decide whether or not to take that holiday to Whistler skiing during the next Aussie summer.
The payoff for getting the simple things right is really worth the effort.
It is easy to miss the point that when reading a financial blog that the authors, and usually readers have a passion for investing……..and I am as guilty as anyone. However the vast majority of people don’t invest for fun or because it’s their hobby.... they invest so that they can improve the odds of living comfortably in retirement, and to leave some money to the next generation if they have enough. The good news is that 99% of investors don’t have to duplicate a great hedge fund manager's performance to stack the odds in their favour.
Picture someone who has saved $1 million and spends 50 grand a year. It's obvious that without investing, they will run out of cash in twenty years. However by earning just 2% per annum on their nest egg buys them another 5 and a 1/2 years in the black.
Even a modest return makes a big difference to how long a nest-egg lasts.
This is oversimplified because we are assuming, for ease of calculations, that the money grows and is spent at a steady rate, which is clearly unrealistic. However the point in doing this exercise is that it doesn’t take much in terms of returns to make a huge difference in someone’s life.
In a nutshell, investors would be better off if they spent less time thinking about the perfect portfolio and trying to avoid bear markets, and more time thinking about why they’re investing in the first place.