The following is a piece former podcast guest and New York Times Columnist, Carl Richards wrote for his newsletter. We enjoyed his humorous take on “pretend” investors.

Pretending to be an investor is dangerous. It’s not like when you were a kid pretending to be a superhero. That’s because kids generally know better than to confuse “make-believe” for reality. It’s pretty rare that a child jumps off the roof because they actually think they can fly.

But when it comes to investing, adults confuse “make-believe” and reality all the time.

Don’t you think it’s time we grow up a little? 

Here are six ways to tell the difference between real and pretend investors to help get started.

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1. Pretend investors think that financial pornography is real, and therefore, the news ticker scrolling across the television screen represents actionable information.

Real investors know it might be entertaining, like going to the circus. But they would never make a decision because of it.

2. Pretend investors think it makes perfect sense to change their investments based on what they hear in the news: There’s a new president, so act! He doesn’t like the Federal Reserve, so trade! He criticized bankers, so buy bank stocks!

Real investors make changes to their investments based on what happens in their own lives. If their goals change or there is a fundamental change in their financial situation, then they consider making a change in their investments. But they would never make a change based on someone yelling “buy” or “sell” on a Financial Pornography Network.

3. Pretend investors think they need to monitor their investments all the time. (The little supercomputer they carry around in their pockets makes it so easy!)

Real investors know it takes a long time for a tree to grow, and it will not help to dig it up to see if the roots are still there. The same rule applies to investments. 

4. Pretend investors talk about their investments—a lot. They say things like, “I’m long this, or short that.” They use jargon that often does not make sense, though it sounds kind of impressive if you don’t listen too closely. Sometimes they cheer for things like increased consumer spending, higher unemployment, or in some cases, even war.

Real investors understand the difference between the global economy and their personal economy, and choose to focus on the latter.

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

Real investors focus on the things they can control, like saving a bit more next year, keeping their investment costs low, not paying fees unless it’s necessary, and managing their behavior by not buying high and selling low.

6. Pretend investors complain endlessly about volatility in the markets, and focus on days.

Real investors are focused on enjoying the benefits of the returns the market generates over decades.

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Look, if it feels like I’m getting in your face a little, it’s because I am.

But I’m doing it for you!

Jumping off the roof because you think you can fly can have disastrous consequences… it just so happens, so can throwing around your money because you think you know how to invest.

If any of the six items in bold above sound like you… you may want to think about what it means to be a real investor.

Or just jump off that roof, and see what happens.

This podcast episode (42 minutes) is worth listening to for a variety of reasons. Most importantly, Carl Richards is one of the best in the world at connecting money and emotion in ways real people can understand. He is the creator of the Sketch Guy column, appearing weekly in The New York Times since 2010. With over 800 simple sketches, Carl knows how to get us thinking and talking about what really matters in our lives. Through his writing, speaking, and sketches, Carl makes complex financial concepts, easy to understand. His work also serves as the foundation for his two books, The One-Page Financial Plan: A Simple Way to Be Smart About Your Money, and The Behavior Gap: Simple Ways to Stop Doing Dumb Things with Money.

Matt loved taping this episode with Carl from his new home in London and counts Carl as a long-time friend.

Don’t forget to leave a review wherever you subscribe to podcasts! Your support really helps spread the word.

We talk a lot about the importance of education because we believe that educated investors are disciplined. In our experience, discipline builds confidence —and confident investors have a better experience. But we also know that we can go months, even years, without a real test of confidence. A test like we are facing now.

The coronavirus pandemic has shaken nearly every aspect of life and sent the markets into wild swings of despair and euphoria depending on the day’s headlines. With this much uncertainty and this level of market volatility, investors must be especially vigilant against falling into the Behavior Gap.

The Behavior Gap is the name coined by author and podcast guest, Carl Richards, to describe the fact that most investors earn less than the market’s returns, simply because they make poor decisions. Chasing hot stocks when the markets are booming or panicking and moving your money into cash—this is the kind of behavior that creates the gap. And it’s a real, quantifiable number.

For 25 years, the research firm DALBAR has been publishing its analysis of the difference between the average investment return, and the average investor return—and it looks bad for the average investor (though some journalists discount the findings and methodology).

For example, stocks have delivered an average annual return of roughly 9% over the last 30 years, while bonds have delivered an average annual return of 6%. If we imagine a 50/50 balanced stock and bond portfolio, that means the investment markets have delivered a 7.5% average annual return over the past 30 years. The average investor, though? They’ve only achieved a 4% average annual return. That difference of 3.5 percentage points per year for the last 30 years adds up to a huge number.

Say you had $1 million in your retirement account. A 4% annual return for 30 years would result in a balance of about $3 million. But if you’d gotten the market’s combined 7.5% investment return, you’d have almost $9 million after 30 years. The Behavior Gap in your savings, then, is missing out on $6 million—all because you let emotions into your investment decisions.

Right now, the risk of succumbing to emotion is especially high. A friend of mine, who is  a successful businessman, recently sent me a note saying he was day-trading while sitting at home in quarantine. He’s buying stock in Zoom and pharmaceutical companies, thinking he can predict what’s going to happen and pick up a few wins. He’s a smart guy who really understands commercial real estate, yet here he is making classic investment mistakes. He’s in the Behavior Gap.

I urged him stop gambling with his money and consider allocating it into 13,000 stocks spread all over the world, like we do. Then I encouraged him to get off the couch and find some other way to pass his time. Because the pernicious thing about the Behavior Gap is that it doesn’t just cost us money. It can have the same draining effect on our happiness as it does on our investment accounts.

As Carl Richards told Matt in his recent podcast interview, he now applies the Behavior Gap concept to any activity that we engage in hoping to improve our situation, but which in fact produces a suboptimal result. Just as making ill-timed, emotional investment decisions hurts our long-term returns, spending emotional energy on things that aren’t useful produces a lot of unnecessary pain, suffering and anxiety.

That’s why we also emphasize to clients the importance of focusing on the things that bring real meaning to their lives. In fact, a framed print of one of Carl Richards’ famous sketches hangs on the wall of Matt’s office, reminding us that our job is to help people stay focused on the small overlap between things that matter and things they can control.

So even as we face ongoing uncertainty about what the post-coronavirus world will look like, remember to focus on what matters, and what you can control. That includes having faith in the evidence that this market downturn, like others, will end. Stocks will recover and disciplined investors will be rewarded. In the meantime, we will be taking care of what we can control, like rebalancing your portfolio and harvesting losses.

Keeping the faith, staying disciplined—that’s exactly what makes our clients different from the “average” investor. And it’s how we help you avoid falling into the Behavior Gap.