The Blue Blaze

Three Overlooked Keys to Being a Successful Investor

 

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Does investing strike “fear” in you? We once heard somebody say the word “fear” stands for “False Evidence Appearing Real.” That seems to apply to investing. Here’s why.

The stock market makes some people nervous. This can be especially true for young people who grew up during the Great Recession. These folks saw market volatility at its worst since the Great Depression, and many  still carry negative impressions about the financial markets as a direct result of this experience.

The truth is  -- the market is neither a one-way ticket to instant riches nor a dangerous game for insiders only. There is risk involved in any kind of investment, but if you understand how the market operates and take a long view when considering your investments, then the rewards can be significant.

By understanding the following three important facts about the market, you might be able to recognize your own “fear” as  “False Evidence Appearing Real” and instead of letting fear rule your decisions, you will feel encouraged to put your money to work for you in the market.

1. Don’t Succumb to the Temptation to Obsess Over Short-Term Results.

The market tends to move in long cycles.

The amount of info we have at our fingertips makes it tempting to check in on our investments weekly, daily, or even hourly. As  financial professionals, though, we take a long-term view of the markets. And while past performance is no guarantee of future returns, the history of the market continues to support an upward trend in overall gains.

Consider the S&P 500 Index. If we go back and look at all the bull (upwards) and bear (downwards) markets from 1926 to 2017, the average bear lasted 1.4 years and resulted in a 41% loss on average. However, the average bull lasted 9 years, and gave investors a 480% gain on average, according to First Trust.

When volatility strikes, patience is usually a good course of action. Your financial plan is designed to provide for the rest of your life, not for one bull or bear cycle -- and if it’s not, it should be! Instead of panicking when the market dips, try to think of volatility as an emotional tax that investors pay on the wealth that the market can create.

And if you do find yourself checking in on your investments as regularly as you check your email, maybe think about uninstalling that app—or call us. We work with our clients to design investment strategies as part of a whole-person, goals focused, whole-life plan. So when our clients sign off on their investment strategy, there’s a very personal, very particular set of reasons and motivations driving that strategy -- and the path we take to get there not only results in sound investment decisions, but more often than not, also increases peace of mind for the short and long-term.

2. Make consistent contributions to your portfolio.

Besides struggling to accept volatility, many people are skittish about the markets because they feel powerless. Money goes in, and decades later, who knows what’s going to come out. They feel that politicians, corporations, and geopolitical tumult will have the final say in how big their retirement nest egg grows.

However, often times the biggest factor that determines the success of your investments is simply contributing new money on a consistent basis. And you have complete control over whether or not you do --  and how much!

As discussed above, the market will most likely trend upwards in the long run. The more of your money that’s along for the ride, the bigger those eventual gains will be.

For example, suppose that you decide to invest $10,000 every year for 10 years into your portfolio. In a flat market returning 0%, that $10,000 would account for 100% of your portfolio’s gains. In a modest market returning 6% per annum, that $10,000 would account for 73% of your portfolio’s gains. And even in a bull market, charging ahead at a rate of 12%, your $10,000 would STILL account for more than half of your portfolio’s gains, according to Invesco.

3. Focus on what you can control.

To be sure, part of investing involves accepting things you can’t control. A hurricane on the other side of the world might rattle the markets for a couple days. A large company might become embroiled in an accounting scandal. The Federal Reserve might make an unexpected interest rate move. Market corrections might follow.

But if you accept  volatility and continue to focus on the big picture, you’ll start paying more attention to the things you can control, like committing to a monthly budget that allows for automatic contributions to your investment and retirement accounts.

Better yet, think about setting a goal to ramp up the size of those contributions. Many people try to save or invest 10% of their income. Can you shoot for 15%? 20%? The bigger the contributions, the bigger the payoff when you retire. And if retirement isn’t on your radar, that big investment cushion will go a long way toward giving you a feeling of freedom.

If you’re still unsure about investing in the markets, make an appointment to talk with us.  

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Topics: Optimal Life,