There have been more than a few occasions where I’ve had a wonderful interaction with one of my daughters then two hours later I’m ambushed by a fiery attack of accusations of being the worst father ever, completely catching me off-guard. What. Just. Happened? Admittedly, it took me a long time to come to grips with this. I still don’t like it, but at least I’m aware that this too shall pass. Sometimes being an investor feels like this.
Following a very nice run-up over the past few years, the stock market peaked in January of this year and has been pretty underwhelming since. Almost as if to make sure we still love it unconditionally, the market challenges us to love it even when it’s difficult to live with. It’s pretty exhausting until you remember that it’s a long-game, albeit fraught with bursts and busts, fits and starts. Embracing this is, of course, is easier said than done, especially when the stakes are higher than ever for a person aiming to live off the investments for the next couple-to-few decades of life.
Given these challenges, we work hard to build plans that reflect all of this, while giving context to any number of other financial needs and objectives like income needs, taxes, long term care, and social security. What’s most difficult to capture in a financial plan, however, is the volatility of markets. The ups-and-downs of the stock and bond markets are impossible to predict with any accuracy in the short term, but do provide us with enough evidence to suggest they can be trusted over the long term. It’s those pesky right-now declines that make investing so maddening.
If a planning scenario predicts a rate of return from investments each year of say, 5% or 6%, does that mean we can plan on that return every year? Nope. Does that mean we can bank on a nice steady trend line in the investments column? Nope again. What we can comfortably project is that over 20 years, the investing markets will give you approximately what you want eventually if you stay the course and beware of the emotional challenges and obstacles of doing just that.
The relationship between investor and markets is clearly not the same as father-daughter or mother-son. What is important to recognize is that we’ll all be tested in all of these relationships. “Are you with me, are you really with me?” the market and your daughter seem to ask? Because if you are with me, this is going to be a very rewarding experience. If on the other hand, you’re not ready to love me through the tough times, bad things can happen.
“Love me.” the market says, even when it’s not terribly lovable. If you do, it may be there for you when you’re old. That’s the big bet we’re making as investors. At least that’s the betI’m making with my six daughters, because if these markets don’t cooperate long-term, I may just be moving in with one of them someday.
All the best,
Adam Cufr, RICP®