Lately, the news has been dominated by negativity, and in many meetings I’ve had with new prospective clients recently I’ve heard the same question: “With everything going on right now, should I just cash everything out until things calm down?” If you’ve found yourself wondering the same, you’re not alone.
As with most things in life, failing to plan is planning to fail. While it’s completely normal and understandable to feel anxious, the problem is that relying on emotions, especially fear, to make financial decisions is a horrific idea. According to Dalbar, the average retail investor has earned just over half the average return of the S&P 500 in the stock portion of their portfolios over the past 30 years. Due to the power of compounding, this underperformance adds up drastically. For example, $100,000 invested in the average retail investor’s portfolio would have grown to about $615,000, while the same investment in the S&P 500 would have grown to over $2.1 million. That’s a staggering difference of nearly $1.5 million from the same starting amount!
One major reason for this performance gap? Emotional investing: namely, fear and greed. A classic example comes from the Fidelity Magellan Fund, which was managed by the legendary Peter Lynch from 1977 to 1990. During that time, the fund averaged an incredible 29% annual return. Yet, Fidelity reported that the average investor in the fund actually lost money. Why? Because people piled in after big gains (greed) and bailed after losses or underperformance (fear). We’ve seen this pattern in human history repeat itself over and over again whether it was tulip bulbs in 1634, tech stocks in 1999, real estate in 2007, or many would argue crypto currency today. Most of the easy gains are usually already gone by the time something becomes popular and many get burned chasing and buying what’s ‘hot’ then fleeing after losses.
This is where planning makes all the difference. We help people avoid this mistake using a very simple and easy to understand approach. Our flagship growth portfolio is specifically designed and managed to recover from any losses in any two to three year time period in a worst-case scenario. This means our clients don’t have to worry about short-term economic turbulence, elections (which happen every two years), or even global conflicts or wars (there’s been one, on average, every 2.7 years over the last 90). By allocating two to three years of desired income into conservative investments, clients can safely draw what they need without having to sell at a loss growth assets that are helping them beat inflation long term. When that short-term bucket is used up, the rest of the portfolio should have recovered eliminating the need to “sell low” or panic about headlines.
Not only do we help people not worry about money during uncertain times, but we help them take advantage of others that are panicking during them. We often see during volatile times the greatest opportunities for significant amounts of outperformance.
Worry is like a rocking chair; it gives you something to do, but doesn’t get you anywhere. If current events have you worried about your portfolio or retirement, it may not be the news itself that’s the problem. It may be that you have the wrong portfolio, a poor or no plan at all. A smart portfolio and plan can get you up out of that rocking chair and back to making memories and doing whatever you want whenever you want as that is what retirement is supposed to be all about.
Material discussed is meant for general/informational purposes and is not intended to be used as the sole basis for any financial decisions, nor be construed as advice to meet your particular needs. It is also not a recommendation to buy or sell any particular investment. Investing in securities involves risk and profit cannot be guaranteed. Please consult a financial professional for further information.
If you are looking for a financial advisor in Topeka or Lawrence to help you create a plan, simply fill out the contact form below.
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