Have you ever talked to your doctor about how to lose weight?
He or she might have told you just to eat less and exercise more, and pretty soon the pounds will come off. What a relief to hear it’s so simple.
So on your way home you buy a bag of mixed greens and some new exercise shorts, and resolve to set your alarm forty-five minutes early to accommodate your added workout.
But ten days into your new routine you’re tired, you’re sore, and you’ve gained two pounds. As you hit the snooze button at 5:30AM it’s hard to think of any good reason to keep going.
In some ways, you can have a similar discouraging experience with investing.
You’ve been faithfully contributing to your retirement account each month—money you could have spent on that dream vacation—and your statement says your investment account is continuing to lose value. It’s tempting to wonder if you’d have been better off stuffing that money into your mattress.
Simple Doesn’t Equal Easy
The plans for achieving objectives like losing weight and successfully funding your long-term investment goals can both be stated very simply:
- Long-term medical studies involving large groups of people have shown that consistently eating less and exercising more will lead to weight loss.
- Similarly, long term-studies of the performance of huge populations of investors indicate that buying, holding and rebalancing a diversified mix of investments is the most probable way to realize inflation-beating returns.
But in both cases, as you try to stick with your plan day-by-day, you can be overwhelmed with short-term, anecdotal evidence that appears to say, “This isn’t working.”
The Need For Support
Nick Maggiulli, an investment data analyst, writes that no investor buys stocks thinking they are going to sell them at the bottom of their value. Yet many end up doing just that.
He notes that when the market drops 5%, you can expect the most skittish investors to sell. But when it’s down 15%, even the best educated investors will often lose their original resolve, taking their losses and getting out.
However, Maggiulli points out that in a typical year the Dow Jones Industrial Average (a bellwether index which tracks 30 large publically traded stocks) will drop 10-15% below its peak, before eventually recovering. Informed investors should know that enduring value volatility is simply part of being in the market. But as a slide in prices extends past a few days and the doomsday headlines pile on, many forget the long term evidence. For many, short-term pain and frustration leads to taking actions that are not in their best interest financially.
This is why Maggiulli recommends that everybody should have a financial advisor. And why, despite the fact that he probably has much more theoretical knowledge of how the market works, he has one himself.
Maggiulli says that your advisor can offer you the behavioral coaching to help you be the best investor you can be, often even saving you from yourself. In his estimation, hiring a trusted advisor is a small investment along the way to help you save to save potentially thousands when the going gets tough.
Your trusted advisor has helped many other people stick to their investing plan when the going got tough, and they’re focused on doing the same for you. If you have any concerns, before taking action please call us: 949-600-6060.