Feeling you’ve been going fast, and now you’re going slow?

fear2Have you ever experienced the feeling of exiting a highway, having driven a while at highway speeds, and then feel like you’re not getting anywhere because you’re driving slower now?

Well, the first part of this year was an experience with double-digit returns in the US markets (highway speeds). And then the markets exited that phase (slower speeds). And it feels like we’re hitting all the stop lights too and making no progress!

The problem with measuring progress with speed (good returns) is that this is not the proper benchmark. Reaching your destination (retirement, college, etc.) is the proper benchmark. Most people measure their ability to reach retirement by how big their returns are. Those returns won’t get you anywhere if the amount you’ve saved isn’t enough in the first place.

The illusion of slowness comes from recent events biasing long term results. You’ve made progress over the long term (you have a balance don’t you? It’s not zero), but progress isn’t felt right now due to a slow or a downturn in the market. Your balance was growing faster, now it isn’t … and you feel like you’re losing ground. This comes from trying to measure backwards; what the balance used to be. Instead, measure where the balance may be in the future when you actually will need the money.

So all of a sudden people are checking their statements and balances more often … as if checking them is going to make them speed up again … even though they know the news is telling them the markets have gone sideways, or down, or up just a little. People are nervous. And they think they have to do something about their nerves.

Well … if you’ve done it right and decided on a prudent allocation then you should stick with it through good and bad. All those changes hurt you by actually doing the opposite of what you are trying to do … save money for some future date, not today. If it’s money for today (or the next year or two), that money shouldn’t be anywhere near the stock market in the first place.

The only way to increase quantity is through savings.* Now many people don’t like to save because that cuts into their spending. However, how do you sustain that spending? Many say they’ll sustain their spending by continuing to work. Just hope your health holds out. Eventually, due to poor health or burn out, people stop working and then they are forced to cut spending even more than they would if they had just saved a little more earlier.

So stop chasing returns and wishing for more. That puts you into dangerous mental traps where you may lose more value in the long run (speed kills is the old saying about driving too fast). What’s the danger … you jump in and out of the markets at the wrong time because of emotions. The markets have always had ups, downs and pauses in between. What you are feeling is the shift between those faster and slower phases; not unlike the feeling you get exiting the highway and driving on surface streets (and it works the other way around too – speed is exciting).

You can’t control the returns the markets are going to give. You can’t control the economy. You can control how much you save and spend. You can control an allocation that is prudent based on your circumstances … and once selected, stick with it.

*More on which is better? Savings or returns?

PS. Not happy with your saving or spending? Here’s a resource to help get started from SmartAboutMoney.org, a program by NEFE.

 

About Larry Frank, Sr.

Larry R Frank Sr., MBA, CFP®, is an experienced financial advisor and a published author on Retirement Planning Research. Have a financial question? Click Here to Ask Larry

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