As we enter the last full month of summer, the inscription author John Steinbeck used in his books seems fitting. Steinbeck was discouraged from pursuing writing by a professor who told him he would only be a professional writer “when pigs could fly”. Steinbeck later joked about that adynaton and said he was still “earthbound but aspiring”. Obviously, what one person sees as an obstacle another sees as an opportunity. Such is the case with our financial lives as well. The struggles and stresses of each day can cloud our vision of what we aspire to accomplish financially in the longer term.
Research on the topic of behavioral finance is replete with findings demonstrating the extreme difficulty of taming our human emotions. Some have gone as far as to say that we, as humans, are not wired for investing success. Sometimes, the struggles and stresses of today outweigh our otherwise good intentions to save or invest for the future. Financial planning, which provides the framework for investment decisions, is primarily concerned with inputs. The two most important inputs are time and the rate at which you save. With sufficient time and a sufficient savings rate, investment stresses melt away. Without time and enough savings, a constant struggle ensues.
In times like now, where market values have risen steadily for awhile, it is easy to create stress by focusing on our portfolio value today without remembering how much the value has risen since 2009. When the inevitable temporary decline occurs, some investors will focus on the short term and make permanent what is meant to be temporary (by selling in a panic). The same holds true for residential real estate, except in reverse since values peaked in 2007 and have only recently started to move higher again. If you focused on the value of your house at the peak, the past 7 years or so have likely been stressful.
Our approach to financial planning and investing is firmly grounded in financial science. Our role is to translate this evidence so that clients make decisions that help, rather than harm, their long term goals. Ready for a real conversation?