Sometimes It Is Best To Ignore Your Feelings

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As advisors who adhere to Evidence Based Investing, we find ourselves repeating mantras to friends, family, and clients alike. "The most successful investors adhere to a well-crafted investment strategy", "Don't let the volatility spook you into abandoning your strategy". "No one can time the markets, it's a colossal waste of time".

We often sound like a broken record, saying the same things many times over in the hope that varying tone, data points, or simple re-phrasing will help our best advice stick.

Humans struggle to separate emotions from logical investing decisions. Our brains have many ways of making us feel reasonable, even when making terrible investing choices.

History shows that the stock market has rewarded investors who can bear the risk/volatility/uncertainly of stocks and has been less kind to those who can’t. Missing only a handful of good market days, can hurt your performance several times over. And some of those good days follow quickly behind market crises.



As for us, we continue investing and participating in volatile markets because there is no alternative. Our goal for your accounts (and our own!) is long term growth to achieve the goals detailed in your Plan.

The recently reported forty-year record inflation figure of 7.9% is the in-your-face reminder that your assets must outpace inflation to last just as long as you will. That cute 0.30% money market APY doesn't stand a chance. Over the period charted below, the S&P 500 posted an average annualized return of 8.1% after adjusting for inflation. Going all the way back to 1926, the annualized inflation-adjusted return on stocks was 7.3%.

What about bonds?

Especially if you are retired, bonds feel safe, right? The return of principal may feel more important than the return on principal at this point in your life. Even if you depend for a short time (1-2 years) on contractual coupon payments for present day living expenses, you cannot rely on bonds alone for future needs.

Your nest egg must still last 30+ years. Inflation of 7%+ will eat away at cash so rapidly you will likely run out of money before your cashflow needs expire. The contractual bond coupon makes you feel cozy/safe; but you are still going backwards and losing against inflation.

Those of us searching for long term growth MUST keep participating in the stock market. US stocks have demonstrated the ability to provide 4.8% a year more than inflation, when inflation is above the median.

Personally, I'm continuing my regular contributions to 401k and after-tax accounts. I also took this lower price buying opportunity to pile unneeded cash into my children's college savings accounts. I’m still waiting on my gold star parent badge for this. This commitment to evidence-based investing is the ONLY way for me achieve my goals.

We'll continue to bore you with our favorite phrases. After all, we are advisors (and parents!) and are expertly practiced at repeating ourselves.


FactSet, Federal Reserve Bank of St. Louis, 11/30/1979 to 9/30/2021. The Russell 1000 Value Index tracks the performance of publicly traded large-cap companies in the United States with lower price-to-book ratios and lower forecasted growth values. The Russell 1000 Growth Index tracks the performance of publicly traded large-cap companies in the United States with higher price-to-book ratios and higher forecasted growth values. The Russell Midcap Index tracks the performance of approximately 800 publicly traded mid-cap companies in the United States. The Russell 2000 Index tracks the performance of approximately 2,000 publicly traded small-cap companies in the United States. It is not possible to invest directly in an index.