Even though I’m in the financial planning business, I try and stay away from articles focused on the stock market. Does that seem strange? Hopefully it won’t by the time you get to the end of this article…
Let’s start with some information about the S&P 500 Index
- On December 31, 2012 the index closed at 1466.5
- On December 30, 2013 the index closed at 1831.4
- On December 31, 2014 the index closed at 2058.9
- On July 20, 2015 the index closed at 2128.3
- On August 10, 2015 the index closed at 2091.5
- On August 28, 2015 the index closed at 1988.9
Now keep in mind, the above are ONLY the closing prices. Investors that invest in a mutual fund/ETF that mirrors the index, also partake in a dividend payment that sits around 1.9% per annum at the present point in time.
So here’s the question(s):
- If I promised you a return of 40.6% over 2.7 years of investing in an equity would you be happy?
Because that’s how the math works out by my calculation:
- 1988.9 versus 1466.5 is +35.6% and 2.7 years * 1.9% is another 5% giving us a total of 40.6%
And yet you would have thought the world ended at the beginning of last week! The news was full of gloom and doom, people were asking if we were headed for a crash, folks were wondering if they’d be able to retire, and so on and so on and so on.
Me? I didn’t even flinch – well that’s not TOTALLY true, but more on that in a bit as well. I base my investment philosophy on two basic things which have been shown to be true historically and that I believe will continue to be true in the future:
- There will be more people on this earth in 20 years than there are now
- The global economy will be larger in 20 years than it is now
Because of these two beliefs, I’m confident that over the long term my investments will go up. I am also equally confident that from time to time they will go down – BIG TIME!
These two beliefs explain “why I could not care less about the stock market”. When you invest in the stock market, you are investing in companies. And if there’s going to be more people, that buy more things, from more companies, I feel pretty good about being part of that “game”.
Unfortunately, most people don’t have a basic belief system OR a basic investment philosophy to guide their participation in the stock market. Rather, they rely on the well (poorly) proven approach of “gut feel”.
And for them, the last two weeks have been UNCOMFORTABLE. And more than a few have succumbed to these negative feelings and sold out of their positions. Could they be right that a further decline is about to happen? Perhaps. However, the bigger question for them is when / how are they going to gauge when it is time to re-enter the market? My guess is it will again, come back to that magical, well (poorly) proven “gut feel”. That’s right, all you have to do to be successful in these folks mind is to exactly time these two feelings properly and you’ll be rich (sarcasm intended in case you missed it)!
Now earlier I mentioned that I “didn’t even flinch”. That’s not totally true. I winced when I saw the market drop last week. I knew that what had happened had caused a six figure negative impact on my portfolio. BUT, my belief in the world population and the world economy being bigger trumped any inclination that I had to “get out of the market”.
So what’s the morale of the story / what’s the lesson? Simple:
- You need to worry less about the stock market and more about your faith, friends & family, and fitness
You should have a solid financial plan and investment strategy in place that address what you do in the quantitative areas of life. This plan and strategy should free you up to pursue the “qualitative” – and I would argue more important – areas of your life.
Now some cynics out there are going to claim that I wrote this article simply to promote my business. BS. I believe 100% that money is simply a tool that we should use to enjoy life. I believe that this is the ONLY way to view money and that people need to wake up to this FACT. I write about non-financial topics and how to overcome our poor financial behaviors as THIS is the secret to “getting rich quick” – when you stop worrying about the money and start worrying about your faith, your friends and family, and your fitness you’ve found wealth.
If there is one person out there that reads today’s blog post and decides to modify their actions even slightly, I’ll have taken one step forward on my journey from success to significance.
Hopefully you’ll be that person. Have a great week.
At F5 Financial Planning we focus on helping individuals and families find balance between faith, friends and family, fitness and finance. We make sure that they have the financial freedom to enjoy those things in life that are important to them. And while we believe the left-brain facts and data are critical; we work with our clients to get them in the right state of mind to focus on the goals they want to achieve.
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