Market Ups and Downs: Who Cares?

This should not be a controversial take, but it is: 

You should not care what ‘the markets’ are doing.  

Focus on you and your plan.

The market is not a logical place

Stock markets are notoriously irrational places; they can go up or down based on a tweet, a war in a faraway land, or because a dude live streaming from his parent’s basement says that NOW is the time to buy XYZ.  

It’s the wild west out there, folks. Sometimes irrational volatility works in our favour, but sometimes it is very much the opposite.

Control the controllables

You have absolutely no control over the stock market, no one does.

What you can control is:

• The amount of money you save to invest every month
• The amount of debt you have / don’t have
• The size of your emergency savings account
• The diversification of your portfolio is (not just stocks!)

People love to point out the difference that 2% more in investment returns makes over 30 years, but rarely do we give the most credit where it is due - to the investor - you.

Have you ever considered the difference to your wealth when making $1,000/month contributions instead of $100? It’s waaaaaay bigger over 30 years than squeezing out an extra half percent of returns by saving on fees.

How would it feel to have so much money saved and no debt payments, that you don’t have to worry about market fears?  

You are the hero of your story, compound interest and good financial advice is the guide.

Eggs, meet basket

The word ‘diversification’ generally drives me nuts. It is so overused in this business and is supposed to be a magic wand that makes risk melt away.  

The reality is that most, if not all, publicly traded stocks move in lockstep. You are not diversified if you own a basket of US traded stocks, nor Canadian. Essentially, nowhere on earth these days.

Globalization of trade has made us all ‘move as one.’

So how do you secure the illusive security of being diversified? You invest in stuff other than stocks. My favourites:

• Music royalties
• Real estate
• Private companies
• Farmland
• Infrastructure

What is your number?

When you diversify your portfolio outside of the stock market you lose the big years. It’s rare to get a 15%+ return in any given year, but it’s equally rare to get the -22% years.

You have to be comfortable with boring. The goal is always to get to the same place - to earn the same types of returns - but cut out two thirds of the drama (the volatility).

When I do a financial plan with clients, I use an annualized return significantly lower than is reasonable to assume. I show plans at a 5% rate of return when my expectation long term is 6.5% to 7%. I intentionally err on the side of caution.

My goal with a financial plan is to have people stop and realize that they don’t need to ‘beat the market,’ they need to achieve their number.

Imagine the peace of mind you would have knowing that you are going to be able to live the lifestyle you want forever, regardless of what the markets are up to?

Now THAT is worth caring about.