BREATHE IN; LET IT GO
Release that anxiety that has built up over multiple days of market declines. The sun will come out tomorrow or soon. Ten days ago I starting writing a blog that asked the question, “How do you think we did in 2015?” Before I had a chance to put it up 2016 had already started with a thud. So . . . time for a little modification.
HOW SHOULD WE MEASURE PROGRESS?
Although I coach people to to have a longer term perspective, I realize we are conditioned to evaluate results that have occurred over relatively short time frames. What have you done for me lately rules the day. In the media we hear a great deal about our economy and market performance as indicators of how much progress we are making. Much of that discussion is based on yesterday’s events. Let’s consider how we are doing over the last few years:
- Our Economy–Some positive, some negative. Low inflation rate, falling unemployment rates down to the point where we are closing in on “technical full employment,” stable interest rates, very reasonable energy costs, continually growing housing market–what’s not to like? Or should we be concerned that our unemployment rate does not count those who have quit looking for work? And what about pay rates that have grown minimally since the 2008 recession?
- Investment Performance– Some positive, some negative. The Market indices we use as proxies for investment performance were generally flat in 2015: the DOW down 2%, the S&P down less than 1%, and the NASDAQ up about 5%. No surprise to me — here’s what I wrote to my clients last August:
UPDATE TO CLIENTS AS OF AUGUST 24, 2015
There are plenty of reasons to wonder how the markets will fare in the next several months. Our global economies are in constant turmoil and although the locale may change from Greece to Japan to China to . . . to the United States, we can count on a certain amount of upheaval.
Because we are a 24/7 world there are plenty of people who get paid to talk about the turmoil and in some instances they have an incentive to encourage your panic. They may be looking for TV ratings, buy/sell activity fees, a new product commission, or something else.
I’m looking for nothing but continued progress in your financial life. Most of my clients are invested 60-80% in the stock market. A drop in market value affects your wealth noticeably less than the talking heads would have you think it does.
The same is true on the upside. A 10% rise earns you only 6-8% in your portfolio. I have no client whose financial future is based on a portfolio that grows 10% per year. I don’t want to manage to those expectations.
Having said that, in the last 5 years the S&P 500 Index has risen an average of 12.5% EVERY YEAR and that is after the most recent 10 days of dropping. I tell everyone stocks have historically risen 10% per year, but not in a straight line. Up 15%, up 8%, down 6%, up 12%. Whatever the mix, we pretty much don’t care, because we understand the trend is always up over the long run.
Although losing value is always painful, it is part of the game. If the S&P were to drop back to the value it was in early OCTOBER 2013, it would still be up 10% per year over the last 5 years. What more can we ask?
THE BOTTOM LINE
These last two paragraphs tell the story about using market indices as a way to measure progress in our Investment Performance. 2015 was an indifferent year for our markets. But we need years like that to balance the good and the bad that comes from time to time also.
Invest for the long term, allow markets to grow your wealth, and accept 2016’s performance as just one blip on your timeline.