I want to make three main points. First, the “facts” of investment history aren’t always what they seem. This can fool us into making flawed decisions. Second, emotional impatience and wishful thinking can fool us into believing we know more than we do.
Third, Wall Street actively fools us in various ways, and most of the financial media passively goes along. Read: Here’s how to use the new tax-bracket information for 2024 to lower your tax bill Fooled by the past We think we know certain things to be true. For example, over the long term, the S&P 500
has compounded about 10% a year. That’s pretty easy to verify; the index is fixed in its makeup, and there’s nothing nefarious going on behind the scenes. However, “long term” can mean different things. It’s true that the very-long-term compound return of the S&P 500 has been around 10%. But most of us don’t invest for 90-plus years. At the end of 1999, the S&P 500 had grown at more than 17% for a quarter of a century. In just the most recent five years (1995 through 1999), it had compounded at 28.6%. As the new century shoved the old one aside, fortunes were being made as technology was transforming the world from analog to digital. Surveys of investors indicated many expected the next 10 years would produce annual compound gains of 20% to 30%. As a result, far too many people …