Warren Buffett said, “Investing is simple, but not easy.” But in real life simplicity has little to do with ease. Take losing weight. Very simple. Burn more calories than you take in. Easy, right?
Why is it not easy: The Conflict
The path to our long-term goals is often filled with conflicting short-term “issues”.
- Wanting long-term results, and safety and security (no fluctuations)
- Wanting to take the risk, but can’t take another 2008/2009
- Wanting long-term results, but needing a certain amount of income that won’t/can’t fluctuate.
Sometimes we lack the patience and psychological fortitude to stick with our plan during times of losses and uncertainty – however short or long they may be.
Even with the best of intentions, we sometimes make decisions to satisfy our emotional urges. That can make us feel good at the time, but may lead to a significant long-term cost.
The Cost of Following Urges
JP Morgan reports that over the past 20 years, six of the ten best days occurred within two weeks of the ten worst days. So even a temporary lapse in judgement can be very costly.
Take a look at the differences in returns from missing just a few of the best days in the S&P 500 for the time period January 1998 – December 2017.1
Fully Invested Entire Time 7.2%
Missed 10 Best Days 3.5%
Missed 20 Best Days 1.1%
Missed 30 Best Days -0.9%
Just 30 days out of over 7300. Wow, there is a cost of feeling good or comfortable. Being uncomfortable at times is the price we pay to earn an above average return.
That is one of the most important reasons I’m here. We cannot control the market; we cannot predict it. But we can counsel together and ensure the best decisions are made in line with your long-term goals. Let’s have a conversation!
- JP Morgan, Guide to Retirement. 2Q 2018. Page 40.
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.