Good morning & happy Monday!
I hope you had a wonderful Mother’s Day! Hat’s off to the amazing mom’s out there … you change the world 😊
“You don’t have to be smarter than the rest, you have to be more disciplined than the rest.”
Warren Buffet, investor
Well, I’m not sure if you’ve noticed it, but the stock market has been fairly active recently 😉 That’s probably a big understatement. We’ve seen value jump all over the place recently which I am fully aware can be very stressful.
When I look at my monthly investment statement, I love to see a higher number than the month before. The times that my account value goes down never feels good.
Why is that? Pretty simple answer … because I’m a human.
Investing is an emotional endeavor. Investing is almost anti-human … could we even classify it as inhumane? LOL 😉
To watch from the sidelines as our life savings jumps around like a kangaroo is stressful, but I want to pose a question:
When does it matter what the value of my investments are?
This is not a trick question and it’s actually a very simple answer … when I need the money. That is the time I should care about my investment value, all of the other times don’t matter as much.
Let’s say I own 1,000 shares of an investment with a value of $100 per share I would have a value of $100,000. If that value per share goes up to $1,000 then I have $1,000,000. That feels great … but does it really matter? Well, it only really matters if I’m ready to sell the investment, but outside of that it really does not matter that much. Likewise, if the value goes down to $50/share my value is $50,000 which feels really lousy, but if I’m not ready to sell, it is not that big of a deal.
If I own a home the value can go up and down week to week, month to month, year to year … no matter what the value at any given point it kinda’ does not matter because I’m not selling it. When I go to sell my home that’s when it really matters the value. Many of us are reading this message from our home … a home that likely has increased in value dramatically, but unless there is a “For Sale” sign in your yard that increased value really is not super important.
It’s the same with investments. The value of my stock portfolio (my ownership stake in the businesses I own) only really matters when I am ready to sell. If I’m about to sell ALL of my investments, then the current value means a lot. But to my knowledge, there is not a single person receiving this email directly who is in that position. Virtually all of us fall into 1 of 2 categories:
- Those of us in the accumulation phase – this is those of us who are actively working and adding money to our investment portfolio
- Those of us in the distribution phase – this is those of us who are retired and are drawing funds from our investment portfolio
If you are in the accumulation phase you should actually be hoping for lower equity value, as crazy as that may sound. The lower the purchase price goes of securities I’m looking the purchase the more shares I am able to buy. If I’m saving $1,000/month and an investment is $100/share, then I can buy 10 shares. If the value of the investment goes down to $50/share, then I can buy 20 shares for the exact same $1,000. Market pullbacks can provide tremendous opportunities for those in the accumulation phase.
I’d like to wrap up today’s comments talking to my friends in the distribution phase. The temptation is to say something along the lines of “I’m retired and I can’t afford to have the value of my portfolio drop when I’m taking income from the portfolio.” I fully understand this thought process, but please allow me an opportunity to point out a critical component that is oftentimes overlooked: you are probably not taking out ALL the funds at once. If you are 65 years old, we must plan on 25-30 years of distributions from your investments. We cannot allow a bad week, month, quarter or even year distract us for the critical objective of generating LIFETIME income from your investment portfolio. Please, please, please do not let short-term headlines (as scary as they may be) or short-term market movements (which I know are no fun) distract you from this most critical objective of LIFETIME portfolio income. We are not building short-term portfolios because, even if you are in retirement, you don’t have a short-term investment horizon.
Please reach out if there is any way my team & I can be of assistance.
Make it a great week ahead 😊