Stop Fretting About the Markets

I've said it before, and I'll say it again. I have to stop fretting about the markets. It's not like I'm going to act one way or the other based on daily changes. Not even monthly changes will sway me away from my investment strategy, so why this constant finger on the pulse? It's a waste of time. Even the relatively tiny bit of fretting that I currently do is stupid.

If I was in over my head, there would at least be some logic to my fretting. However, we have a positive cash flow. We don't need to see daily profits on our investments. We're not dependent on our nest eggs for survival. The only thing that matters is that our investments are sound and likely to do well over the long run, and there's a very simple way to determine if this is the case or not.

First of all, reduce everything to four categories:

1. Cash
2. Gold
3. Real estate
4. Index funds

Cash is needed for short term liquidity, so we put aside a reasonable portion for that. Gold is money for the long term. Real estate is for living and for renting out. Index funds are for cash flow.

With this in mind, we can dismiss silver and crypto as speculative alternatives to gold, and we can dismiss individual shares as speculative alternatives to funds.

We can allocate our savings to real estate, index funds and gold based on historic data as follows:

• Real estate:
• Cheap when modest but comfortable apartment/house cost less than 2 kg of gold
• Expensive when above 6 kg of gold
• Index funds:
• Cheap when P/E is below 6
• Expensive when P/E is above 15
• Gold
• Preferred when both real estate and index funds are expensive

From this, we can make allocations that make sense for years on end. Adding to this the risk of owning these assets, we can weigh our investments according to our age and risk appetite as well:

• Gold: low risk
• Real estate: medium risk
• Index fund: highest risk

A retiree should weigh allocations more towards low risk than a younger person. However, the general rule should be to buy things when they are historically cheap and sell them when they are historically expensive.

Based on the above, my wife and I own a modest apartment in which to live, which makes it a necessity more than an investment. We also own gold, but we own no index funds.

Our allocations will remain like this until real estate and/or index fund become cheap. Only then will we re-allocate our savings, which means that we're unlikely to do anything about our positions for years to come. Seen in this perspective, even low intensity fretting about daily or weekly moves makes no sense. Much better then to stop fretting all together, and simply enjoy life with only an occasional eye on the markets. 

Sovereign

By Heritage Auctions for image, Mary Gillick for coin - Newman Numismatic Portal, Public Domain, Link