Why planning for the long-term and having patience pays in these confusing times
When taking a step back and looking at the markets as a whole over the last 12-plus years, there’s this concept that the “easy money” has been made. The run up from the lows in March of 2009 through the end of 2021 was somehow easy? In hindsight, sure when you see the S&P 500 go up over 600% over that time, it certainly looks easy. But each year there were rational concerns telling us the market had to pull back. It never felt easy to be fully invested in the moment, but in hindsight it was the right thing to do.
The past few weeks have shaken the markets up pretty significantly. It is a confusing time to be an investor. On the one hand we had this raging bull market, with the markets going parabolic since the Covid lows. Everyone had been talking about a remake of the “Roaring 20’s.” On the flip side, the last two months have brought about considerable concerns. Inflation at 40-year highs, Fed tightening, supply chain concerns, and now the conflict between Ukraine and Russia. It has many investors stepping back pondering what to do next.
Part of what makes this market environment so difficult is the FOMO of the past two years. We’ve seen incredible wealth being created, and in some cases lost. A lot of this wealth was created from exposure to risky and new asset classes like crypto. In some other cases it stemmed from high-flying new tech stocks, or even a “meme” stock like GameStop or AMC. It gives the impression that you can get rich quickly in the markets. This couldn’t be further from the truth. While it does happen, the most successful investors are those who are patient.
The Last Two Years Didn’t Help
The last two years have been filled with a lot of market regret. When the markets bottomed out in March of 2020, there was talks of a “V” shaped recovery being possible. I don’t think anyone could have predicted how the next two years would play out with stocks going on a tear. Especially since the rise in markets began when least expected - the number of covid infections were soaring and the economy looked doomed. But the markets didn’t look back. As we so often say, the markets are forward looking and it proved exactly that.
Not only were stocks going straight up, but we had crypto and NFT’s dominating the investing discussions. There were many people getting very rich. There have been booms (and subsequent busts in the past), but never before have we seen it in an environment that was so public. Twitter, Instagram, facebook - whatever social media platform you prefer, there were stories and pictures and examples of ordinary people( maybe even your neighbors) getting rich overnight. This makes it hard to be patient, especially when it feels you may be late to the party.
Getting rich is a long game
I came across some interesting statistics about millionaires from the book I Will Teach You to Be Rich by Ramit Sethi. Whether attaining millionaire status is top of mind or your number one priority isn’t really the point of this discussion. It has more to do with the process of wealth creation for the majority of wealthy people in our country.
The first stat that resonated with me was that 2/3rd of millionaires in our country were self-made millionaires. The point being is they weren’t all born into it. An additional study he cites, one from a U.S. Trust survey on millionaires stated that “83% of the wealthy say their largest investment gains have come from smaller wins over time rather than taking big risks.”
Putting it all together, the majority of the wealth generated by the wealthy in our country has been done by being consistent and building it over time. It’s hard to consider this when others are seemingly getting rich overnight. And taking gigantic risks can pay off and for some it has. But it’s not the norm. There needs to be discipline and patience for most of us to attain our goals.
Being Rational in an Irrational World
With everything going on in the world - inflation, Russia / Ukraine, lingering Covid economic effects, making sound investment decisions is tough. We try to make rational decisions with our investments, but we live in an irrational world. And as much as we want markets to operate in the rational sense, oftentimes they act irrationally in the short-term, and more rationally in the long-term. Unless you are taking the long-term approach, it's hard to do well with a rational approach to investing in the short-term.
Have a Plan
It’s hard to be patient in general, it’s even harder without a plan. A financial plan is great for helping to set goals. But it can also help to do something even more important - change everyday behavior. I’m a big fan of this concept and it's the main focus when getting to know and work with our clients.
I like this concept I first read from Adam Grant’s Atomic Habits, about doing the small things. Goals are great, but if you don’t change your behavior the goals are oftentimes unattainable. It’s critical to focus on systems. Having an investment plan, or system, in place can help navigate these uncertain times. Being disciplined and patient with an appropriate system in place makes dealing with the uncertainty much simpler.
Having a plan can alleviate a lot of this uncertainty. It can form good habits. You may not get rich overnight, but you will get there, in time. There’s nothing more important during these times of volatility and uncertainty than patience. And although it isn’t easy, it does pay.
If you’re having trouble investing in these uncertain times, maybe we can help.
Written by: Ryan Bouchey