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The markets start every day on a clean slate - and so should you

By Sam Instone - January 18, 2023

People have memories.

Markets don’t.

And that’s a good thing.

One of the best things about markets is they don’t remember what happened last week or last year.

Or even a minute ago.

Prices change based on "right now" and what people think will happen in the future.

So as you start 2023, take a lesson from the market.

Don’t begin this new year plagued by what happened last year.

Give yourself the opportunity to start fresh and move on.

Every day in publicly traded financial markets, buyers and sellers negotiate prices for everything.

Every single stock and bond.

They have to find a price they both think is a good deal.

This happens over and over, millions of times a day.

The next day, it starts all over again.

Unlike you and me, markets don’t think about the past.

It’s about today and expectations for the future.

Every piece of available information feeds into the decision-making process.

That way, everyone involved can agree on the price for a particular security at a particular moment.

Markets are smarter and faster than you and me.

In the one minute you've been reading this so far, markets have probably factored in thousands of pieces of new information and adjusted the prices of thousands of different company securities.

That’s good news.

Markets do the work so you don’t have to.

You don’t need to believe in magic or be a fortune teller to have a good investment experience.

And I'm not giving the market too much credit.

I’m just being realistic.

Academic research gives us insights into investing.

Over the past century, markets have returned on average about 10% a year, although almost never that amount in any given year. 

And the annualised inflation-adjusted return on US stocks is 7.3% going back to 1926.

Because of big swings year to year, trying to time markets is a losing game.

Don't bother.

Go along with them. 

Create a plan, take no more risk than you can tolerate, and go spend some time with your loved ones.

Investing has risks.

There are no guarantees.

Control what you can control so you can set yourself up for success, and then step back.

No one is perfect, so judge yourself by the quality of your decisions and not by their outcomes.

After all, there are so many factors outside your control that can impact investment returns.

Try not to impose your memory on your view of markets.

You'll risk 'seeing' patterns that aren’t there and make choices that aren’t based on research or evidence.

It can feel daunting to develop an investment plan you can stick with and determine the level of risk that’s right for you.

But few things are more important than how you invest your life savings.

That’s why most people would probably benefit from a financial planner to help them talk it all out.

When it comes to investing, the key is not to try to outsmart the market, but to understand how it works and use that knowledge to your advantage.

The market is a great information-processing machine.

It runs on human ingenuity, which is why returns tend to grow over time as people work to innovate and improve the value of the companies they work for.

So start the new year off with a clean slate—just like markets do every day.

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