Here are some random thoughts about the interesting times in which we live:
Why do so many folks, who are far from retirement, get so hot and bothered when the stock market drops and their investments lose value? If they have been paying attention – and they should be – they would be well aware that the market provides but a snapshot of value.
Additionally, they know or at least they should know that the market fluctuates and that, the value of stocks do not go straight up forever. Corrections are a normal part of a market activity. Eventually, if history is any guide – be it an imperfect one – values begin to rise again after a downturn. While it is true that the past does not predict the future, we ignore history at our peril.
Some of the same people who become almost apoplectic about a stock market correction routinely think nothing of eating at restaurants multiple times per week, taking lavish vacations and buying or leasing expensive, status symbol automobiles for themselves and even their children. All this when in reality, they are living beyond their means.
This says nothing of the thousands of dollars these folks incinerate on designer clothes, shoes and sneakers, handbags, electronics, premium coffee and an endless list of other consumer items virtually guaranteed to lose significant value or become worthless. And worst of all, many of these things never make people any happier.
Somehow, losing virtually 100% of their money on these frivolous purchases, year after year, with nearly no chance at future growth and little to show for it over the long haul, seems no cause for concern. Yet a market downturn, which history has shown to be a temporary phenomenon at least up to now, can cause much hand-wringing and consternation.
One of my mentors told me back in 1996 that there are three kinds of lies, “lies, damn lies and statistics.” He was right. I often see the “market average rate of return” written or talked about in a way that seems to suggest people should expect that return on their investments. An average is far from a guarantee, however.
Will you stay invested or will you need to withdraw some or all of your savings at some point? Will you continue to contribute to your holdings when the market drops? Will you be invested exclusively in equities over your lifetime or will you prudently diversify into other asset classes like bonds, insurance, CDs, etc.? What will happen if you or a loved one gets sick, becomes injured or heaven forbid, passes away?
Do you seek value and invest for the long haul or do you believe that you can out guess the market? Do you believe in making a reasonable plan, one that utilizes a variety of tools to strive toward protecting your money, or do you feel that putting all your eggs in one basket is reasonable?
All of these things which I have mentioned, along with a variety of other factors, will affect your long-term rate of return, perhaps monumentally. Beware of planning based on statistics devoid of context.
We live in a time in which exaggeration and polarization seem to be the order of the day. It would appear that, at least on a societal basis, we have forgotten how to disagree without becoming disagreeable. Thankfully, this is not true for all individuals.
Some of this, no doubt can be attributed to the Internet and the perception that when people make comments in a variety of places around the Web, they feel anonymous. This feeling of anonymity leads to the Internet version of beer muscles. Courtesy is thrown out the window in favor of hollow bravado. How many people would troll others if everybody knew who they were?
But the Internet is not solely to blame for this state of affairs. Life, often confusing and challenging, frequently has us yearning for a feeling that we are aligned with some absolute truths. Consequently, when someone puts forward an idea that collides with our own worldview, we might, if we are not disciplined in our thinking, begin objecting to everything about the person who presented it.
What makes this particularly fraught is that if we were to keep an open mind and weigh each concept on its own merits, we might find that we can disagree with a person about one thing yet be enriched by a spectrum of other ideas and concepts that they have to offer.
As investors, we need to avoid anger, fits of pique and being held hostage by emotion. We need to strive toward knowledge and, if someone puts forward an idea that is at odds with our own investment worldview, perhaps we should take several deep breaths or go for a 40-minute walk before we dismiss that idea out of hand.
When considering a new investment idea, it might be worth sitting in our homes and offices calmly so that we might evaluate new ideas in a way that allows ourselves to be taken where the facts lead us. It is very likely that we do not know everything we optimally should know about investing. It could be that speaking with a knowledgeable financial professional might, and I emphasize might, help us in becoming better investors.
We can only assess ideas if we are open to learning about them. Knowledge is power. Becoming better informed and not being tethered to our own internal status quo just might lead to advantages.
Scott R. McGimpsey November 30th, 2018th
This material was prepared by Scott McGimpsey and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources, however, we make no representation as to its completeness or accuracy. Neither Summit Brokerage Services Inc. nor Scott McGimpsey is engaged in rendering legal, accounting, or other professionally services. If such assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any federal, state, or municipal tax penalty. Moreover, a diversified portfolio does not assure a profit or assure protection against loss in a declining market. UNIFIED PLANNING GROUP is an independent firm with securities offered through Summit Brokerage Services Inc., Member FINRA,