Focusing on the Long Term
DecisionPoint’s New Office in Gig Harbor
After a few COVID related delays, we are please to announce that our new DecisionPoint office in Gig Harbor is now open! We are located in the Canterwood Building just up the hill from St. Anthony Hospital at 5727 Baker Way, Suite 107, Gig Harbor, WA 98332. This office provides one more venue where we can meet with you and your family to review your investments and take you through the financial planning process.
GameStop and the Markets
It’s easy to view the stories of market speculation that have dominated the news recently as cautionary tales for individual investors. While the high-stakes action of a stock like GameStop may lead a person to believe they are missing out, it is important for you to understand that investing and gambling are not the same thing.
If you’re not the type of person who feels comfortable betting your life savings on a long shot, or you can't afford to lose $700,000 in a single day trade like Barstool Sports Founder Dave Portnoy, then we have wonderful news! You don’t have to find the next Tesla, or trade stock options, or chase bitcoin to win in the stock market. Concentrating your whole investment on one or two companies can expose you to extreme and unnecessary risk. Even if you manage to land a few big winners, studies have found that good luck is unlikely to repeat throughout a lifetime of investing. For every winning trade that your co-worker brags about in the firehouse, there’s likely to be many other trades that they lost money on.
We promise that you will be far better off investing in the whole market through a low-cost, highly diversified portfolio, rather than speculating on a few individual stocks. Then let time and compounding do their work. Compounding is the investor’s best friend: if an investment grows at a rate of 10% a year, that means a dollar invested will double every seven years. As a point of reference, a globally diversified equity portfolio has grown at an annualized rate of well over 10% since 1926. When you are in the accumulation phase of life (i.e., contributing regularly into a 457(b) account), stock market corrections like we saw in March 2020 are a huge advantage to you because you are temporarily buying stocks on the cheap. This is why it’s critical to maintain your investment allocation through both up and down markets.
For the record, most stock asset classes are up between 5% and 14% just since January 1st of this year and 2020 produced very positive results for the stock markets despite a pandemic and a global economic recession.
Financial Planning Sketch Art - Focusing on the Long Term
One of the things we love to do as humans is to take the recent past and project it indefinitely into the future. We do this in good and bad times. Behaviorally, this is called recency bias. We can overcome this bias by lengthening our definition of the recent past.
In other words, shift your focus from days into decades. This is especially true when it’s been a painful week, month, or even year in the stock market. What if, instead of talking about the last ten days and the next ten days, we talk about the last ten years and the next ten years. How might that change your outlook on what actions you do or don’t take when the market is in turmoil?
As always, please reach out if we can be of assistance!
- Your DecisionPoint Financial Planning Team -