Lessons on Staying the Course

If you keep up with any of my personal life on social media, you know that our family has had a busy summer. Before getting into that, we have also had a very busy summer at Fiat settling into our new office location in Wayzata. We are extremely excited to find a new long term home in the western suburbs of Minneapolis. Stay tuned for a grand opening celebration, and also a short visual tour of the space on the blog. 

On to the personal side….we are also excited to announce that we have purchased the Crossfit gym that my wife, Katie, and I both frequent. The gym is exactly one mile from our home (I have measured!), and our family already spent a great deal of time there before we owned the place. We made the decision to purchase the gym with another local family as we both have other businesses that we own and operate. Let me be clear – I am not in charge at the gym, Katie is most certainly the main owner and operator there! 

Why am I talking about gyms, and what does that have to do with financial planning and wealth management? Well, I think there are a lot of things in common. If you are not familiar with Crossfit, the definition of Crossfit is: “constantly varied functional movements performed at high intensity”. It can be challenging, very challenging. Often times the workouts can be just as mentally challenging as physically challenging. There are times when a person wants to quit throughout the workout (speaking from experience). Every time you complete something that pushes your boundaries, you become just a bit more resilient or as some like to say “harder to kill”. 

Are you still asking: “how does this relate to wealth management?”.

Well simple, long term investing can also be challenging. It is easy to reel of statistics about the long term growth of the US Stock market (or any other asset class), but not quite as easy when you are in the middle of a market downturn, and going through the experience of watching your life savings go on the roller coaster ride. This is where I am supposed to say, don’t worry – the long term growth of the stock market (or bond market, or real estate market) is on your side. Yes, that is true. But this is not an article about that advice. 

Let’s actually look into the ‘eyes of the beast’ (talking the US Stock market here) and be real with our expectations: 

The roller coaster ride is always happening. We just have very short and selective memories as humans. As Tony Robbins points out in his recent book, Unshakeable: “there’s been a market correction — at least a 10% drop from its peak — every year since 1900. But, on average, corrections last less than two months. And less than one in five become a bear market, which is a drop of at least 20% from the market high.” Just let that sink in – there has been a correction EVERY year since 1900. In fact, 2016 was the WORST start for the stock market in recorded history based simply on the timing of that correction. If we look at historical trends as illustrated above, just based on patterns, we will likely have our awareness antenna up right now. 

I am not going to get into further economic data here supporting or disproving the current value of the stock market, this is about managing our behavior when the roller coaster does happen (as it always does). If we have that expectation that there is going to be some discomfort, and make sounds decisions in the midst of those swings – then we can rest assured that we have a much better chance of appreciating the long term growth prospects of the stock market (or any other asset class).