First off, the markets do matter, but not always in the way we think. They matter over the long term and over that long-term, the stock market has given us the best return for the risk we take. I often get asked, “what will the markets do?” The good news is that I can tell everyone exactly what the markets will do over the next thirty days. They will move up and down. Where will they end next week, next month, or next year? I really do not know and I would argue that it does not matter so much.Where will they be in ten years? I would most likely be wrong if I tried to predict, but, I’m willing to bet my career that they will be higher than they are today.
This is easy to believe and understand, at least until it affects our money. We are human and when it happens to us, the pain we feel is much greater than the pain we feel when it happens to someone else. Unfortunately, it is that pain that can cause our humanness (if that is actually a word) to react and create havoc on our best laid plans. I am not a psychologist; however, I think that we can probably agree that fear and the self-preservation reaction caused by that fear is probably what saved our ancestors from being eaten by lions and tigers. Fast forward and here we are; generations later and that self-preservation reaction can now cause us to make irrational decisions contrary to what is really happening. It explains why it is easy to sell out of our portfolios when the market falls, and it explains why we stay out of the markets far too long and miss the upswing.
Because we know our fear can cause us to make the wrong decisions, it is crucial that we understand what it is we want our money to do for us, both short-term and long-term.If you are going to use your money in 3 months, you really should not be taking risk, and if you do not need your money for several years, then that risk can be our ally.
As much as I would love to pick the best stock and make everyone a millionaire overnight, I cannot.If I could, I doubt I would be writing this. I prefer to help build your plan and be the voice of reason, keeping you on track while staying the course and reminding you why the markets really don’t matter.
Disclosure: Investing involves risk including the potential loss of principal