Most people think investing is complicated. They believe you need to watch CNBC daily, pick the right stocks, and know exactly when to buy and sell. The financial industry has spent decades reinforcing this belief—after all, complexity sells advisory services.
Here's the truth: investing is actually quite simple. The hard part isn't the mechanics; it's managing your own behaviour.
Before diving into strategy, we need to understand why we invest in the first place. Think about what a basket of groceries cost 20 years ago versus today. This isn't just prices going up—it's inflation systematically eroding your purchasing power.
If you keep $100 under your mattress or in a zero-interest bank account, that money loses value every single year. You're not preserving wealth; you're watching it slowly disappear.
Investing exists to combat inflation and build toward financial independence. Whether you're 30, 50, or approaching retirement, you're looking at a 20-40 year investment timeline. The goal is simple: replace your earned income with a portfolio that maintains your lifestyle when work becomes optional.
Could you save your way to retirement without investing? Technically yes, but you'd need to save five to seven times more. Research shows that if your investment returns dropped from 7% to 2% (essentially a savings account rate), you'd have to increase your savings rate from 10% to 50% of your income to achieve the same result.
Despite all the noise and conflicting advice out there, investing is actually a problem that's been solved. The evidence is clear, and it comes down to three fundamental principles.
When we look at professional active fund managers—people who dedicate their entire careers to outperforming the market—over 90% of them fail to beat it over 10, 20, or 30-year periods.
These are professionals with teams of analysts, sophisticated tools, and full-time focus on investing. If they can't consistently beat the market, what chance does an individual investor have while running their own business?
Even Warren Buffett, widely regarded as one of the greatest investors of all time, recommends a simple approach: just own the market.
Active management requires expensive teams making constant decisions, which means higher fees for investors. Passive investing simply mirrors the market at a fraction of the cost.
You've heard the phrase "don't put all your eggs in one basket." This applies to investing in multiple layers: don't put all your money in one company, one sector, or one country.
For Canadian investors, this last point is especially important. Canada represents only about 3% of the global market by capitalization. If you invest exclusively in Canadian companies, you're missing 97% of global business activity.
The evidence shows that a globally diversified portfolio capturing overall market returns delivers strong, consistent long-term growth.
In March 2020, during the early days of COVID-19, the market experienced one of the fastest drops in history. An investor watched his portfolio plummet and couldn't take the pain anymore. He sold everything, crystallizing a five-figure loss, and moved to cash.
A few months later, the market had fully recovered. He'd missed the entire ride back up.
This is a perfect example of panic-driven decision making. The investor tried to time when to get out, but then also needed to time when to get back in. Getting both decisions right is extraordinarily difficult, even for professionals.
Research examining a 25-year period of the Russell 3000 showed that missing just the best week in the market reduced your total returns by over 16%. Nobody knows when these best weeks will happen. They often occur during the most volatile, scary market conditions—exactly when investors feel most compelled to sell.
If the investment formula is so straightforward, why do so many people struggle? Because investing isn't just a math problem. It's a psychological problem.
Every investor goes through predictable emotional cycles:
Optimism: You start investing with hope that your wealth will grow.
Elation: Markets go up 20-30%, and you feel brilliant. Greed can creep in.
Nervousness: Markets pull back. You begin second-guessing yourself. Should you be checking your portfolio every day?
Fear and Anxiety: Markets drop 30% in weeks. You're watching hundreds of thousands disappear. Should you sell before it gets worse?
Relief and Optimism: Markets recover. Maybe this time will be different, you think, starting the cycle over again.
This cycle happens because markets inevitably go through ups and downs. It's not a question of if a market crash is coming—it's when.
How you manage these emotions matters far more than your investment strategy. Research consistently shows that investors earn 2-3% less annually than the investments they hold. This "behavior gap" exists entirely because of emotional decision-making.
Evidence-based investing means:
Evidence-based investing is NOT:
Good investing is boring. It's so slow and uneventful that it feels lethargic. That's exactly the point.
As Morgan Housel, author of The Psychology of Money, puts it: the worst financial advice is "buy low, sell high." Replace it with "buy often and hold forever."
You need an investment philosophy you can stick with for decades—not just for this year, but for the next 30 years.
It's one thing to answer hypothetically: "How would you react if markets dropped 30%?" It's another thing entirely when your million-dollar portfolio becomes $700,000 in three months.
The ideal response is: "I expected this to happen. It makes me uneasy, but I have faith in the future."
If your actual response would be "I can't handle this pain," then you're in the wrong portfolio. You can't have it both ways—wanting a conservative portfolio when things go wrong and an aggressive portfolio when things go well.
Don't invest for the sake of investing. Connect your investment strategy to specific outcomes: financial independence, early retirement, or simply the flexibility to make work optional.
When your investing is tied to a concrete vision of your future, it's easier to stay disciplined through market volatility.
Once you've determined how much to save annually, automate it. Set up monthly contributions so you don't have to think about it. Automation removes emotion from the equation.
Successful investing isn't about finding the next big thing. It's about sticking to a strategy that already works.
The formula is straightforward: own a globally diversified portfolio, keep costs low, stay invested through market cycles, and ignore the noise.
The challenge isn't understanding this intellectually. It's having the discipline to execute it when markets drop 30% and every instinct tells you to do something.
That's why having a clear philosophy you understand and believe in matters so much. When volatility hits—and it will—you need conviction that your strategy is sound.
The goal isn't to make investing exciting. It's to build a life you love with the freedom and flexibility to do what you want, when you want. Boring, disciplined, evidence-based investing is how you get there.
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