Aug 06 • 3 min read
The loudest thing in investing
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The U.S. stock market is sitting within a fraction of a percent of a new all-time high. You might expect that to feel reassuring, but for many investors, it has the opposite effect: A nagging sense that things have gone a little too well and the other shoe is about to drop. That uneasy feeling is worth examining. Because how you respond to it will likely matter far more to your retirement than whatever the market does next. In today's email, I'm sharing one of the best investing analogies and using it to help put that feeling to rest. As always, I'll wrap up with a few of my favorite retirement and investing articles I read in the past week. *** Before we dive in, did you catch this week's podcast? 👇 The Wind Gets All the AttentionFive years ago, Seth Godin wrote a short post called The Current and the Wind. In it, he wrote: The wind gets all the attention. The wind howls and the wind gusts… but the wind is light.
The current, on the other hand is persistent and heavy.
On a river, it’s the current that will move the canoe far more than the wind will.
But the wind distracts us.
It may be the best investing analogy I’ve ever come across. The "wind" is the 24/7 news cycle, or what author Nick Murray calls the "apocalypse du jour." Election drama. Fed meetings. Debt ceilings. Whatever crisis is trending this week. Ben Carlson made a similar point years ago: One of the downsides of the Information Age is that we're force-fed the idea that we have to care about every macro event. But it's important to remember that we don’t need to understand, predict, or react to every one of them. Most will fade from view long before they have any meaningful impact on our long-term investment results. The wind is loud. But it's light. What Actually Moves YouThe "current" is different. It rarely makes the news because steady progress is not very exciting. The current is the millions of people showing up to work, businesses finding better ways to serve customers, and new ideas slowly becoming part of everyday life. That quiet pursuit of progress is what drives the long-term earnings of great companies in America and around the world. And those earnings—not the news of the moment—are what ultimately determine what your portfolio is worth decades from now. We've seen it play out over and over in our lifetimes. Wars, recessions, pandemics, political turmoil... every one felt like the end of the story while it was happening. And every one ended up a footnote. The wind howls, but the current keeps us moving. What This Means for Your RetirementAccording to J.P. Morgan’s Guide to the Markets, the S&P 500 has experienced average intra-year decline of roughly 14% since 1980. Yet despite those drops, it still finished the year with a positive return about 75% of the time. The lesson is simple: frightening moments are not a sign that something is broken. They are a normal part of investing, and your retirement plan should be built to withstand them. That's exactly why I encourage retirees and near-retirees to hold a "war chest" of safe assets covering the next few years of known expenses. When your near-term income is secure, you don't need the market to cooperate this month, this quarter, or even this year. The wind can howl all it wants. Bottom LineSuccessful investing is a multi-decade endeavor, and every piece of "breaking news" eventually becomes a footnote in history. Through every crisis, human ingenuity and the steady pursuit of progress have continued to move the world forward. History gives us little reason to believe this time will be different. Here’s to ignoring the wind and trusting the current. 📚 What I've Been Reading
Thank you for reading! Please reply to this email with comments, questions, and/or feedback. Stay wealthy, Taylor Schulte, CFP® |