Well, the home gym has been set up. Jesse and I are hitting the bench hard. I am definitely not as strong as when I was in college. Jesse is embarrassed at his weak father. I can't even do a pull-up (I could do 20 in high school, but I weighed 40 pounds less). I'll let you know when I can bench 200.
Chris did a career aptitude test at school. I remember doing one in college, and it said I would be a carpenter (who designs these things?). So, his results returned, and they suggested he become a costume designer, a sewer, or a nanny.
Well, the fantasy football season is over, and the triumphant champion is now revered in the family as a football savant. It was me, by the way. I won the championship. It came down to the last game of the NFL season, where my running back scored four touchdowns.
The following article shows how two people handled the same financial event differently.
With the market showing temporary extreme volatility, these people saw their account balances drop by 15% in a relatively short period. Their investments had reached $600,000 at their peak. They now sat at $510,000.
First off, Paul.
Paul had retired a year earlier and began living off his savings. Watching his account drop as he was making withdrawals was putting him under intense stress. This is it, he thought to himself. I’m going to have to start looking for a job. I worked so hard for the money and now watch it disappear quickly. I am sick about this.
Paul went out of his way to learn more and more about the financial markets. The more he tried to understand, the more frustrated he became. I am more confused than ever, he thought. There are so many options and opinions. Who do I trust? Everything seems to have its pros and cons. All I know is that I see my life savings draining away.
Paul started having a hard time sleeping. He would wake up in the middle of the night with a start, thinking about money. All we have to fall back on is Social Security. We can’t live on only Social Security. It would take forever to make that money again. I’m so dumb. I am too old to invest. What should I do? I know I need to at least keep up with the rate of inflation.
Paul continued to stress his body each day the markets happened to be down. Sure, there were some really good days in there, but a lot of them were bad. The bad days hurt a lot more than the good days felt good.
Paul found himself checking the stock market multiple times a day. It almost turned into an obsession. Whenever he had a spare moment, he would check his phone's “stocks” app. Whenever he had any expense, he cringed at the thought of running out of money.
You can be like him if you want to, but please don’t be like Paul.
Now, let’s learn about Tina.
Tina’s investments also experienced this same scenario, but Tina didn’t know. Tina never got around to opening her statements. She didn’t make much effort to pay attention to financial things. She took her monthly dividend and interest payment (which was deposited automatically into her account) and never thought much about it.
Tina thought to herself, what am I going to do today? The weather is beautiful. Really good beach day. I’ve got to plan a trip up to Pennsylvania to visit the grandkids. Being retired is great. You don’t have to answer to anyone, and you get to make your own schedule!
Ultimately, when all was said and done, her strategy of investing in a balanced and diversified portfolio worked perfectly well. The markets rebounded and continued to grow as they had for decades.
Both Paul and Tina had identical investment returns and results. Actually, that may not be true. There is a good chance Paul made some emotional decisions along the way, which dramatically reduced his earnings. By paying more attention to his portfolio he lessened his returns more and more.
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Dave’s Motivational Speech:
When these times come it separates successful investors from unsuccessful ones. You will reap profound long-term returns if you can handle temporary reductions in your account values.
In the past, many of you have said to me, “I know the markets will come back at some point, but I don’t have time. I’m retired.”
Let’s review a quick history lesson. The markets have had significant downturns four times in the past 90 years.
1.World War II. The markets recovered in 3 years.
2.Oil Embargo in the ’70s. Markets recovered in 3.5 years.
3.The internet dot com bubble in the early 2000s. Markets recovered in 3.5 years.
4.The real estate bubble in 2008. It took 3.5 years for your portfolio to recover.
This idea that you’ll have to wait ten years to get your money back is historically unprecedented.
Risk equals reward, but luckily, the only “risk” you are facing is the risk that your portfolio temporarily goes down for a couple of years. The reward is significant and permanent.
Be Blessed,
Dave