Investing? What’s the Bigger Picture?

Many people don’t see the big picture of investing. They can’t see the forest for the trees! Below are three (3) big picture things when it comes to investing.

Many focus so much on returns NOW instead of what investing is supposed to do for them over the long term. Markets are always uncertain. The COVID-19 Coronavirus pandemic is an example of how people can get sidetracked based on emotional investing, rather than stepping back to see the forest instead of all those branches of the trees going off in all directions blurring your focus from all those distractions (thoughts in your mind).

I define the long run as the rest of your life. Goals should be based on you rather than some external reference point like what to do now. Sooner goals for your money, such as within a couple of years, should NOT be invested at all, but rather saved instead. What’s the difference between saving and investing?

So here are three big picture perspectives on what you’re really trying to do with your money. These three points make up the “forest” for investors.

Big Picture point #1:

How many times in the past, especially over your investing experience, have the markets turned down? You can see from the below graph the answer to this question (to end of 2019 which is the latest full year at the time of this writing).

So, here’s the real point. Why would the markets change this behavior just because you are about to retire; just retired; or are retired? Markets will NOT change their character based on your situation. YOU need to change how you view your situation!

What surprises me is how surprised people are by the markets each and every time they go down in the first place! Note above too that sum of the peaks is greater than the sum of the declines, which is why markets have grown over time (see #2 next). “Black Swan” events have happened and will continue to happen, and there are ways to manage exposure (see #2 next). The past doesn’t predict the future, though history is a good teacher.

Big Picture point #2:

Why do people invest in the first place? Because they have expectations of positive returns. If people expected to lose money, they wouldn’t invest to begin with! Again, from the graph above, most of the time those expectations work out. There are brief, relative to the rest of your life, moments where the markets are negative. Those are not reasons to get out, but reasons to understand how to control your exposure to the effects of those eventual downturns to begin with. It’s not market timing, changing things every time the markets change, but structuring your portfolio for both the short term and the long term at the same time.

Big Picture point #3:

What’s the main objective of investing in the first place? I would argue that it is to accumulate shares! Acquiring more and more shares over time means you are getting incremental growth on each of those shares over time (remember the long run (graph above)?). Early shares you have go up the most over time, while shares you acquired lately go up the least – until eventually, as you age, you’ve held those later shares for longer as well. Reinvesting dividends and capital gains also acquire more shares, even when retired, to go up in value later.

Instead of getting anxious or fearful or panicky about VALUE of your holdings … shift your focus to number of shares you have. Those stay the same unless you buy or sell. Actually – without you realizing it – as an investor, accumulating shares is what you’ve really done all of your investing life … but few even look at that basic and fundamental fact!

Don’t look now, but the value of your home may have gone down from time to time too. People don’t sell their house because it has – and then re-buy that house when it’s gone up again. And then selling it and re-buying it over and over with every real estate market swing.

Reducing stress by changing your focus is better for your health. Buying high and selling low is harmful to your wealth.

You know when you look online that the value of stocks are going to be down when the markets are down, or up when markets are up. So why look?! Especially often. Rather, if you can’t resist and must look, look at the monthly statements and shift your focus to the number of shares you own!

Photo by Jenny Hill on Stocksnap.

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