Much of our satisfaction with the events of life have a lot do with our expectations. Do you remember your first day of high school or moving into your college dorm? Do you remember your first car? Or the first full-time job? Or the first “love-of-your-life?” Then what happened? Did they live up to your expectations or were you ultimately disappointed that reality did not live up to the hype in your head? Please read to the end…it is worth it …. I promise.
Investing is much the same. Expectations and reality often run along divergent paths. Not that reality is necessarily bad. But maybe just different from your expectations. Investing can be a lot like relationships. They start with infatuation, blossom to love, commitment….and then things get complicated. A successful relationship needs patience, understanding, compromise, willingness to admit mistakes and finally sometimes just old-fashioned commitment to make it work.
Yes, I am an investment advisor and not a marriage counselor….so I will “stick to my knitting.” But if you don’t mind me saying, I think it is a pretty good analogy.
What are your expectations from your investment portfolio? Rate of return? Time frame? Volatility? These are hard questions. Financial planners are told they need to ask their clients these questions. But when asked, clients often have no experience with this kind of question or how to answer it. They sometimes say what they think they should say….or maybe what the advisor wants them to say. Like the love story in the movies.
All is good … you are in love…the car brings freedom…college life is beer and parties…But eventually, the excrement hits the circular oscillating device…your girl-friend dumps you…you are in danger of flunking out…the car needs a new head gasket…or the markets go down. Now what?
“Stick to your knitting Fred.”
Look at the table below. Study it a few minutes. It shows the years in which the S&P 500 had returns within ten-percent performance ranges. The chart covers the years 1928 – 2019. This means it begins before the Depression and ends the year before Covid.
The chart and notes included speak for themselves. However, I cannot resist pointing out a few items. Yup, 25 losing years out of 92 on the chart. But 12 of the 25 losers are less than 10% which means that thirteen were 10% or greater. This means a “big” loss meaning more than 10% happened only 14% of the time….and this is 100% invested in stock. Probably very different from your account.
Sixty-seven of ninety-two years were positive years. Yup, 73% of the time you make money. Another way to say it, seven of ten years….or 3.5 years out of five you make money. Yes, past performance is neither a guarantee nor an indication of future performance.
What is your expectation for your investments? If this chart and history is how you are formatting your expectations, you should expect money to make money in 7 of 10 years. Not every year. Not in any sequence. It is like marriage for fifty years. Now I realize that for some of you this is a good analogy and others a very bad one. What I am attempting to say is with your investments, as with a relationship, it is not always great, it will take work, perseverance combined with reasonable expectations…and in the end it is worth it all (this has been my experience).
If the last six to twelve months is the extent of your investment experience, I know this is very hard. Consider this just bad luck. Your account is down ten to twenty percent…maybe less…or more. Inflation is raging. The FED is raising interest rates. War in Ukraine. Covid is not going away. Murder in the streets, supermarkets and churches. Politics has become tribal warfare. And don’t forget that Bitcoin is down 56% from its November 8, 2021 high of $67,554 to less than $30,000…sorry couldn’t resist dropping that in.
Your financial advisor is a crazed optimist. He goes on and on about “long-term investing” or worse yet, is calling this point in time a “great buying opportunity.”
At this point, I will resist spouting off all the reasons the economy and the stock market are not the same and how the economy is still strong in spite of the stock market’s recent decline.
I get it. This is a difficult period for everyone in so many and different ways. That is why we are here to listen. What are your concerns? What are your plans for your money? What are your priorities? What has to happen? And when does it have to happen?
Managing investments and money in good times is challenging…but in times like this, if you are not in need of cash, you are fortunate. However, if you are needing large amounts from your investment accounts now, it is not good. Not insurmountable….but hard.
Nick Murray has been preaching for five decades: “The best time to buy stocks is when you have cash. The best time to sell is when you need the money.”
Focus on your priorities. “What has to happen with your money and when?”
Wollman Wealth Design, Inc is a financial planning and investment advisory firm in Escondido, CA that partners with people in San Diego County, California and the rest of the country who are striving to identify financial priorities and design a reasonable approach to accomplishing their financial goals. Please contact us with questions, comments, or to schedule a phone call or a Zoom or an in-person office meeting.
If you can sit quietly after difficult news; if in financial downturns you
remain perfectly calm; if you can see others succeed without a twinge of
jealousy; if you can happily eat whatever is put on your plate; if you can
fall asleep after an intense day without a drink or a pill; if you can always
find contentment just where you are: You are probably a dog. —Jack Kornfield
Securities and advisory services are offered through Cetera Advisor Networks LLC (doing insurance business in CA as CFGAN Insurance Agency LLC), member FINRA/SIPC, a broker-dealer and registered investment adviser. Cetera is under separate ownership from any other name entity. CA Insurance License #0604093
"The views stated in this letter are not necessarily the opinion of Cetera Advisor Networks LLC and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.
Investors cannot invest directly in indexes. The performance of any index is not indicative of the performance of any investment and does not take into account the effects of inflation and the fees and expenses associated with investing.