A mentality I see among a lot of new investors is conflating what just recently did well with what they expect to do well in the future. The former is very easy to identify, the latter is nearly impossible.
It usually takes the form of “I’m just gonna invest in Apple, Tesla, and Amazon because I know they’re gonna do good.” Well, they did GREAT the last 10 years. I don’t know what is going to happen in the next 10 years. But I do know one thing: it’s going to be different than the last 10 years.
That’s why I love index funds. When you buy an index fund you DO own Apple, Tesla, and Amazon. But you also own potentially thousands of other companies you haven’t heard of (yet). And when you DO hear of them for being the next Amazon, you can rest soundly confident that you already own it inside of your index fund.
Buying what just did well is chasing past performance and will likely lead to underperformance. Buying and holding an index fund is guaranteeing yourself your fair share of all market growth. That’s a good bet to make.
As always, reminding you to build wealth by following the two PFC rules: 1.) Live below your means and 2.) Invest early and often.