You’re Buying Units

Being a wise investor requires an understanding that market cycles are an inevitable part of investment markets and our personal investment journeys. We've learnt from history that having the ability to behave rationally during times of both fear and greed is the best predictor of whether an investor will achieve life-changing long-term returns.

In particular, the ability to have the right mindset during temporary market declines sets the wise investor apart from the speculator, whose lifetime returns are likely to be destroyed by poor decision-making during crucial times.

The Wrong Way to Think About Market Declines

The surest path to making poor investment decisions is to focus on short-term market movements. What we lose sight of during times of uncertainty is that the value of our portfolio (or that of an index quoted in the newspaper) on any particular day is no reflection of our progress towards financial independence.

Obsessing about this number is the first step on the road to worrying about countless factors outside of your control. This is not a recipe for investment success. We believe that there is a better way.

You're Swopping Money for Financial Independence Units

An alternative approach with a better likelihood of success (and a saner investment experience) is to value your portfolio by the number of fund units you own. This number is shown on your statement, and it doesn't change between today and tomorrow based on arbitrary market movements.

Every additional unit you purchase, through either lump-sum investment or regular contributions, represents another brick in the financial independence house you are building. You're swopping money for units, and ideally, you never stop.

Market Declines Are Sales on Financial Independence Units

Within this framework, a market decline provides you with the rare opportunity to buy more units for every Pound (or Dollar) you're investing.

If the item that your future financial independence depends on is on sale, should you be happy or sad? Would you buy more or stop buying for a while until the price increases again? If you're investing for a lifetime, mindset is everything.

Appreciate Every Cycle

We know from history that markets advance more often than they decline. This makes the investment journey more manageable, allowing you to save your emotional fortitude for the rare times of decline.

You have the opportunity to view all cycles positively. A market decline is an opportunity to increase the number of units you own faster. A rising market boosts your progress towards independence by making your units more valuable.

Mature investors appreciate both spectrums of the cycle. They also have an appreciation for market history and an informed trust in the capital markets to reward those who are disciplined and patient. Do you have the maturity to see the markets this way? As Nick Maggiulli writes in his brilliant personal finance book, the trick is to "Just Keep Buying."