Volatile Market Pep Talk: Discipline Can Set You Free
As I draft this piece, the markets have been throwing a lot of knuckleballs. If only we weren’t human, investing would be easy, even when the pitches go wild. Staying in the game really only requires a few sustainable skills: disciplined saving, sensible investing, objective oversight, and patient resolve.
Unfortunately, these “simple” steps are hard to take. The most rational course often feels counterintuitive to what our instincts and emotions tell us to do instead. So, today, let’s focus on discipline – in saving and investing alike.
For your best saving habits, you should hope for down markets now and then; they let you buy more shares for your stock-buying dollars. In retirement, down markets are less ideal, but still best thought of as temporary conditions to be managed rather than avoided in your overall plan.
In investing, a volume of evidence informs us that frequent declines are expected in what has otherwise long been a general, upward climb. A picture speaks a thousand words as seen in this Dow Jones 100 Years Historical Chart.
Think of all the upsetting events the world has endured in the last 100 years. The result is a minefield of volatile short-term market returns. But over the same time, global markets have always recovered … and kept climbing.
Why? While we tend to refer to capital markets as if they’ve got a mind of their own, they’re actually only the combined results of every human’s determined efforts to improve their family’s life. In short, we are the market. And we’re progressive people; we come from those who have progressed. To cite a few encouraging global stats, between the 19th century and today, a newborn’s life expectancy has increased from 30 years to 71–81 years; over the last 30 years extreme poverty has declined from 37% to 9.6%; and the number of democracies has doubled. (Source: The Wall Street Journal, “The Enlightenment Is Working,” February 9, 2018)
All in all, this is a good time to be human. Just don’t let your humanity get the better of your investing, where a high degree of discipline remains your best defense against the market’s many moods.
Written by John A. Frisch, CPA/PFS, CFP®, AIF®, PPC®