Financial Lessons Learned....Maybe


As we close in on the end of 2019 (somehow), it will mark my 20th year in the financial services industry. When I look back from where I started and where I am today I see not much has changed in the way clients react to the capital markets. Some of the names are different but the story remains the same. For the most part, humans are quite simply poor investors. Down to the deoxyribonucleic acid (DNA) we are coded to react contradictory to appropriate investing behaviour when markets become embroiled in turmoil.

Let history be our guide to investing. Tune out the media noise, the doomsayers, the pundits of perfunctory world annihilation. The first lesson we should keep is that markets go down. In fact, in the average calendar year, the peak to trough decline in the S&P 500 Index is 14% . And yet, despite these violent moves the average return since 1980 has been a positive one by 10% per year.

Lesson #2 - The quintessential adage that you should be invested for the “long-term”. The term “long-term” is a subjective one. Long-term for me may be different than that of someone else. Let us note that “long-term” holding periods of equities (stocks) can range from 1 year to twenty plus years. For the purpose of the point I am making we will analyze returns of 1, 10, and 20 years. Of course past performance is no indication of future results here, but the statistics of returns dating back to 1927 to 2018 are the following :

For a 1 year holding period - stocks have been positive 73% of the time

For a 10 year holding period - stocks were positive 94% of the time

For a 20 year holding period - stocks were positive 100% of the time

So, the first thing you should do is speak with your financial advisor to discuss your plan to identify your long-term. You should be confident that investing in high quality, diverse assets should produce positive returns as the time scales expand.

For the past 8 years or so we have been inundated with the next market crash story. We are told that markets crash every 5-7 years, we are told there is a recession on the brink, we are fed so much disingenuous material on a daily basis that it becomes easy to want to put your head in the sand and sell your holdings. Part of the reason for this is the competitive journalistic landscape that currently exists where everyone is desperate for clicks. It is a negative by product of our existence but that is why you must be coached and stick to the plan in place. This leads us to lesson number tres: Only a fool can think they will out maneuver the market on a consistent basis.

The risks of attempting to outwit the stock market can significantly reduce your overall return. Dont believe me? Here is some data from S&P Dow Jones and Lord Abbett :

Hypothetical growth of a $10,000 investment from 1993 - 2018

Investors who were fully invested - Account value $94,468

Investors who missed the best 10 days in that time period - $47,145 (50% less)

Investors who missed the best 20 days - $29,220 (69% less)

Investors who missed the best 30 days - $19,235 (80% less)

So the next time you think you’re going to be a part time day trader, you should really reevaluate your circumstances and think about the long term effects of fooling around with your savings. You would have significantly squandered away your money and worst of all, your time.

And yet, I know, from practicing this business for what will be 20 years come December, and all of the empirical evidence I have just laid before you, there will be a good number of clients who want to get out of the market when the downturn comes. As the old aphorism once so astutely proclaimed, “bear markets return stocks back to their rightful owners”.

Work with a professional who understands why it is important to stick to your financial plan and will guide you through turbulent market conditions because mortals are failed investors.

Michael Anicito, CFP®

Inspire Investment Solutions, LLC - President

646.606.2111

mike@inspireis.com

www.inspireis.com


Michael is an independent CERTIFIED FINANCIAL PLANNER™ who practices in New York and New Jersey. He works with individuals and business owners alike to help save for retirement and manage their assets. He is currently the President of Inspire Investment Solutions, LLC (www.inspireis.com). For more information or a complimentary consultation you can reach him at 646.606.2111 or at mike@inspireis.com.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. All indices are unmanaged and may not be invested into directly. This example provided is hypothetical and is not representative of any specific situation. Your results will vary. The hypothetical rates of return used do not reflect the deduction of fees and charges inherent to investing.

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