Why Real Investing Makes More Money Than Pretend Investing

The main goal of Investing is to grow your wealth. However, a study by Richard Bernstein Advisors showed that the average individual investor didn’t even outperform inflation – meaning they had negative real returns. Why is that?

All too often, it's because of the difference between ‘real investing’ and ‘pretend investing’.

When kids put on a cape and pretend to be superheroes, even they know the difference between ‘pretending’ to be superman and actually jumping off the roof thinking they can fly. 

As an adult, it can be harder to differentiate real investing and pretend investing. It might not be as simple as jumping off the roof, but the dangers of pretend investing are equally as dangerous.

Carl Richards, the author of “The Behaviour Gap” gives us 6 points on how to spot the difference between real investing and pretend investing.

1. Pretend investing is thinking that the news ticker scrolling across the bottom of the television screen represents actionable information.

Real investing is knowing that it might be entertaining, like going to the circus. But remembering that KiwiSaver is a long-term investment, and short term fluctuations will not matter in the long run. Real investing is not making decisions based on a newsflash.

2. Pretend investing is changing investments based on what is said in the news: There’s a new Prime Minister, so act! He doesn’t like this industry, so trade! She criticised bankers, so buy bank stocks!

Real investing is making changes to your investments based on what happens in your own life, not what’s happening in the markets. It’s changing your KiwiSaver fund when there’s a fundamental change in your goals or financial situation. Real investing is not making a change based on someone yelling “buy” or “sell” on television.

3. Pretend investing is monitoring your investments all the time from your phone.

Real investing is knowing that it takes a long time for a tree (your KiwiSaver account) to grow and that digging it up to see if the roots are still there doesn’t help. Because watching things get big slowly is not very exciting, real investing is about not talking about that tree all that much.

4. Pretend investing is talking about your investments — a lot. It’s saying things like, “I’m long this, or short that.” It’s using jargon that often does not make sense, though it sounds quite impressive if you don’t listen too closely. Pretend investing is cheering for things like increased consumer spending, higher unemployment, or in some cases, even war.

Real investing is understanding the difference between the global economy and your personal economy, and choosing to focus on the latter.

5. Pretend investing is worrying endlessly about the news in some far-off part of the world and the impact that news will have on their portfolio.

Real investing is focusing on the things within your control, like contributing a bit more next year, understanding which risks you can diversify, and managing your behaviour by remembering that KiwiSaver is a locked-in long term investment.

6. Pretend investing is complaining endlessly about volatility in the markets, and focusing on daily performance.

Real investing is enjoying the benefits of a market that is up more than 180 percent in the last 20 years. It’s seeing that your KiwiSaver balance may have dropped suddenly due to market volatility from COVID19, but not panic switching to a more conservative fund because of this.

Real Investing is About Aligning Your Investments With YOU

If you’re a KiwiSaver member, you are investing. Pretend investing or real investing? We’re not sure. By putting money in your KiwiSaver account, you're investing in a range of companies, properties, and fixed interest securities. Do you know what your KiwiSaver fund is invested in? 

Real investing is not necessarily reading up on KiwiSaver updates and news each night. Real investing is having a KiwiSaver strategy based on your personal financial situation and goals, and then selecting a fund based on in-depth research – more than just a Google search.

National Capital and its Authorised Financial Advisors offer quality, online financial advice that’s designed for real investing. Start by taking National Capital’s KiwiSaver HealthCheck. Real investing in KiwiSaver could mean thousands more in retirement.