This blog has been cathartic for me in many ways; it feels like a way to reinforce what we do and why we do it, while working in some fun, interesting, or entertaining things along the way...
I started writing this yesterday and when the news broke about Kobe Bryant's passing I stopped for the day and then changed the content this morning--despite me knowing that the details are crucial when investing client assets, sometimes writing about "mutual fund expense ratios" (or whatever other relevant financial topic I may be covering) just seems kind of relatively unimportant.
But now it's Monday and I'm bringing my commitment to using history--even the last 24 hours of history-- to bring insights into our financial lives.
I hope you enjoy this week's Three Things.
Adam Harding, CFP / Smartvestor Pro
If this is your first time receiving this email, here's some background: "Three Things" is a quick weekly email to recap some things that stood out to me in the previous week. I try to find inspiration in articles, videos, images, and anything else that I can tie into a financial planning or investment tip. Let me know if there's something you'd like to see covered, or if you happen to spot something interesting which you'd like to share. I hope you find this insightful!
Thing #1: Kobe.
I can't say anything about Kobe Bryant that is unique or special in any way. It's just a tragic accident and a huge loss. But when we lose someone who's in the prime of their life, who's healthy, happy, and who has every reason to carry on for decades, it hits home and it reminds us of our own mortality.
Sometimes it takes a jolt like this to wake us up.
The truth is this:
People all around us are fighting battles all the time. Some win those battles, but many lose...
And eventually we all lose the battle, and that's okay.
The point is that we have to enjoy the process --the ride.
Here's Kobe's speech about the process from the night they retired his jersey at Staples Center in Los Angeles.
"Those times when you get up early and you work hard, those times when you stay up late and you work hard, those times when you don't feel like working, you're too tired, you don't want to push yourself but you do it anyway:
That is actually the dream.
It's not the destination, it's the journey. And if you guys can understand that, then what you'll see happen is that you won't accomplish your dreams. Your dreams won't come true, something greater will.
And if you guys can understand that, then I'm doing my job as a father."
-Kobe Bryant's message to his daughters on the night his jersey was retired.
It's a little hard to move on from those words and those images of father and daughter, but we're giving it a shot. Read on:
Thing #2: It's Not Your Money
You set goals.
...And then it's time to invest.
Then you might say:
"But Adam, the market is at all time highs! I don't want to invest, what if there's a correction or recession or Coronavirus that crushes the markets?"
Aside from the fact that "All-Time Highs" have historically been GOOD times to invest (Link), I find that there's one trick investors can use to feel better about their portfolio in today's climate.
That Trick = Realizing the Money in Your Portfolio Isn't Yours
So if the money isn't Yours then whose is it?
The Answer = Future You
....And Future You wants to use that money to buy some stuff.
...And that stuff Future You wants to buy may be expensive (healthcare, college, vacations, etc.).
...And the more time between now and when Future You needs the money, the less you need to worry about short term risks to your portfolio.
Within every portfolio there isn't just one Future You, there are many of them. For a new retiree, one of the Future Yous needs some of their assets next month to pay for living expenses, but another Future You needs assets in 10 years to pay for living expenses., and still another wants to leave a legacy to children and grandchildren in 30 years.
Blending together the wants and needs of the many Future Yous is how an asset allocation is formed... Conservative investments for near term Future Yous and more aggressive for longer term ones.
If you're nervous about markets and if Future You doesn't need money for a while, then the advantage of having time on your side cannot be understated.
So when you're considering making an adjustment to your long term financial plan based on your short term fears, just ask whether "Future You 15 years from now" will be happy or glad that you attempted to time the market.
THING #3: A Note To Yourself
I see an increased frequency of people looking to hire a financial advisor under two distinct circumstances:
Circumstance #1: EVERYTHING IS FALLING APART, I NEED HELP
--This most recently happened in the fall of 2018 when the markets declined 20% based on rising interest rate fears and concern around the US-China Trade War.
Circumstance #2: EVERYONE IS MAKING MONEY AND I'M NOT, I NEED HELP
--This is how things are right now.
As we know, Money = Feelings. I get it.
But also, Feelings = Risk (when it comes to money).
Making big financial decisions is scary enough, but to help add some discipline to the process, let's enlist someone who knows you well:
Here's what I want you to do:
In your current calm state of mind, ask yourself these questions and record the answers somewhere:
- "If my current portfolio fell by 10% what would I do?"
- "If my current portfolio fell by 25% what would I do?"
- "If my current portfolio fell by 33% what would I do?"
Then ask yourself the opposite: "What if I gained 10%, 25%, 33% etc."
These recorded answers can be helpful to review in the midst of chaos or unbridled market optimism.
Also, this process can be extraordinarily helpful if you're considering a hugely risky investment (like dumping a bunch of money into a single stock, making a private equity investment, etc.).
In that case, ask yourself these questions (again, in your current calm state):
- How would it change my life if this risky investment was a home run and I achieve a 100%, 200%, 300%, etc. rate of return?
- How would it change my life if this risky investment was a dud and I lost 50%, 75%, or 100% of my investment?
Usually the answer to #1 (the major win) doesn't mean a life-changing event, but the answer to #2 can cause some serious pain.
When you have these answers recorded somewhere, then you con revisit them in the face of a big decision.
Or if you work with me then I serve as that reminder.
That’s all for now, cherish your life and blessings a little more this week.
Adam Harding, CFP®