Coach’s Corner-“Shred Your Statements!”

2020 is certainly going to go down in history as one of the wildest, craziest, and most memorable.  In just over 100 days, the President of the United States was impeached and then acquitted, Australia experienced one of the worst wildfires in their history, we’ve experienced a worldwide pandemic, the economy was shut-down, the 2020 Summer Olympics are cancelled and postponed and so are the vast majority of most other sports.


We’ve home-schooled our children (and it looks like we’ll be doing it again this Fall), the Pentagon released videos of possible UFO’s, the stock market has crashed faster than at any other time in U.S. history, then we had the killing of George Floyd, which was then followed by rioting throughout the United States… and now, with unemployment rampant throughout the country, and with the PPP loans for businesses running out, no one really knows how bad all of this is going to get before it gets better – or if the economy will get much worse at all!


This is truly a crazy year, but one thing is for sure:  The closer you pay attention to all of those things that create anxiety, especially when it relates to how much attention you pay to your retirement portfolio, the WORSE your results can be!


In fact, one of the biggest reasons investors’ financial plans fail is because of those same investors’ inability to stick to their financial plan… and aside from not having a plan in the first place, one of the biggest reasons why investors don’t stick to their plan is because they pay too much attention to the short-term.


Betterment did a study and found this:  The more often investors log-in to their accounts online, the higher the probability of making an unnecessary change to their retirement portfolio or investment strategy.


Now, considering we’ve been living through the first global pandemic in more than a century, it should go without saying that the stock market is going to be volatile.  If that’s the case, do you think it helps – or hurts you to login to your account online on even a semi-frequent basis?


It probably hurts, right?  …but that’s what some investors do.  In fact, in most cases, it’s ironically the more anxious people who have a tendency to pay closer attention to the ebbs and flows of their long-term investments.  Even if you don’t consider yourself an anxious person, if you decide to look at your statements when times are bad, chances are, it’s going to spawn some level of anxiety, don’t you think?


Here’s the other problem:  Anxiety breeds more anxiety!  So, whether you’re generally a more anxious person – or just someone who happens to be feeling anxious at any given time – and you intentionally put something anxiety-provoking in front of your face, don’t you think this will create a feedback loop or cycle that perpetuates those emotions?


Money is most definitely an emotional thing, but it is almost always the short-term, temporary set-backs that cause investors to completely and totally abandon their long-term financial plans (again, if they even have one to begin with!).


Here is some very real truth:  If you observe the stock market (S&P500) going all the way back from 1883 through 2015, the market spent 72.74% of its time down more than -20%!


In other words, 27.26% of the time, the market down between -0.01% – 19.99% (which is still a lot!).  And this also means that, whenever you look at your investment statements or login to your account online, there is an extremely high probability that what you will see will be something that causes anxiety and stress!


Some people learn through reading and words and some are more visual, so for those who want to see the raw data, here it is.  Below is the data that represents the percentage of time the market spends in a state of decline, including depression-era numbers.


Chart-3-Time-Spent-in-Drawdown-Including-Depression-Data-1024x493 Coach's Corner-"Shred Your Statements!"


Below is the same timeframe and dataset, but without the depression-era data.  Still, on any given day, if you open up your statement or login to your account online, you’re going to see that your investment portfolio is down the majority of the time.


Chart-2-Time-Spent-in-Drawdown-1024x469 Coach's Corner-"Shred Your Statements!"


So why torture yourself?!  You’re probably not going to spend your entire retirement nest-egg tomorrow, next week, or even next year, right?!


Realize that there is no such thing as a “safe” investment.  ALL investing carries some sort of risk, whether it be risk to principal, inflation risk, market risk, or any number of other potential risks.


Understand that the stock market “takes the escalator up, and the elevator down,” and that volatility is inevitable throughout your days as an investor.


Ignore what you cannot control – turn off the financial news and radio and do something else with your time that creates a state of calm and relaxation!


Focus on what you CAN control, such as sticking to your written, comprehensive financial, retirement, and estate plan.


Go outside, spend time with your family and friends, and live life!  Instead of creating self-induced stress, focus on the “Horizon” and not your “Feet!”  In other words, focus on the long-term and try your best to ignore the short term, because even these crazy, unprecedented times will be a blip on the radar someday.  They always are!


Categories: Adam Koos, CFP®, CMT®, Educational Articles

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