Many companies featured on Money advertise with us. Opinions are our own, but compensation and
in-depth research determine where and how companies may appear. Learn more about how we make money.

Advertiser Disclosure

The purpose of this disclosure is to explain how we make money without charging you for our content.

Our mission is to help people at any stage of life make smart financial decisions through research, reporting, reviews, recommendations, and tools.

Earning your trust is essential to our success, and we believe transparency is critical to creating that trust. To that end, you should know that many or all of the companies featured here are partners who advertise with us.

Our content is free because our partners pay us a referral fee if you click on links or call any of the phone numbers on our site. If you choose to interact with the content on our site, we will likely receive compensation. If you don't, we will not be compensated. Ultimately the choice is yours.

Opinions are our own and our editors and staff writers are instructed to maintain editorial integrity, but compensation along with in-depth research will determine where, how, and in what order they appear on the page.

To find out more about our editorial process and how we make money, click here.

By Taylor Tepper
February 3, 2016

Sometimes the best way to grasp a complex concept is with a simple picture. The videos in “Big Ideas in Simple Sketches” offer illustrated insights from some of the best minds in money. The drawings may look pretty basic, but the thinking behind them will ultimately make you a better investor.

When drawing up a financial plan, advisers will ask you to specify how big of an investment loss you can stomach. But in his book Rational Expectations, William Bernstein of Efficient Frontier Advisors uses a chart like this one to drive home the reality that you probably feel braver in good times than you’ll really be when it counts. “Take the decline you think you can tolerate and divide it in half,” says Bernstein.

Read next: 12 Great Stocks for 2016

Allowing for your emotional fluctuations matters a lot because if you get spooked into selling your holdings, you may do so at exactly the worst possible moment. Panicked investors who dumped their stocks in March 2009, after the financial crisis pulled shares down 57%, missed out on the market’s 240% total return since then.

Advertiser Disclosure

The purpose of this disclosure is to explain how we make money without charging you for our content.

Our mission is to help people at any stage of life make smart financial decisions through research, reporting, reviews, recommendations, and tools.

Earning your trust is essential to our success, and we believe transparency is critical to creating that trust. To that end, you should know that many or all of the companies featured here are partners who advertise with us.

Our content is free because our partners pay us a referral fee if you click on links or call any of the phone numbers on our site. If you choose to interact with the content on our site, we will likely receive compensation. If you don't, we will not be compensated. Ultimately the choice is yours.

Opinions are our own and our editors and staff writers are instructed to maintain editorial integrity, but compensation along with in-depth research will determine where, how, and in what order they appear on the page.

To find out more about our editorial process and how we make money, click here.

EDIT POST