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The questing is, why do so many people who are willing to pay the price of cars, houses, food and actions try so hard to avoid paying the price of good investment returns?
The answer is simple. It is not a price tag you can see, so when the bill comes due it does not feel like a fee for getting something good. It feels like a fine for doing something wrong. And while people are generally fine with paying fees, fines are supposed to be avoided. You are supposed to make decisions that preempt and avoid fines. Tragic fines and IRS fines mean you did something wrong and deserve to be punished. The natural response for anyone who watches their wealth decline and views that drop as a fine is to avoid future fines.
Thinking of market volatility as a fee rather than a fine is an important part of developing the kind of mindset that lets you stick around long enough for investing gains to work in your favor.
Few investors have the disposition to say, I am actually fine if I lose 20% of my money. This is doubly true for new investors who have never experienced a 20% decline.
But if you view volatility as a fee, things look different.
Disneyland tickets cost 100 dollars. But you got an awesome day with your kids yu will never forget. Last year more than 18 million people thought that fee was worth paying. Few felt the 100 dollars was a punishment or a fine. The worthwhile tradeoff of fees is obvious when it is clear you are paying one.
Same with investing, where volatility is almost always a fee, not a fine.
Market return are never free and never will be. They demand you pay a price, like any other product. You are not forced to pay this fee, just like you are not forced to go to Disneyland. You can go t the local country fair where tickets might be 10 dollars or stay home for free. You might still have a good time. But you will usually get what you pay for. Same with market. The volatility fee, the price of return, is the cost of admission to get reruns greater than low fee parks like cash and bonds.
The trick is convincing yourself that the market’s fee is worth it. That is the only way to properly deal with volatility and uncertainty, not just putting up with it, but realizing that it is an admission fee worth paying.
There is no guarantee that it will be. Something it rains at Disneyland.
But if you view the admission fee as a fine, you will never enjoy the magic.
