Over the last nine decades, the U.S. experienced 9 bear markets and 15 recessions or depressions, World War II and Vietnam, and any number of crises big and small. Yet $1 invested in 1927 could have grown to more than $6,229 by the end of 2017.1
Markets have shown a remarkable ability to reward patient, long-term investors for staying invested. This is important, since most of us are investing for the long term.
For a 65-year-old couple, there is a good chance that one of them will live to at least 95 years old.
We must keep this long term horizon in perspective when judging the success of our portfolio and the financial plan it supports. It is like cooking a turkey for the holidays. Because a 20-pound turkey requires 4 to 5 hours to cook, we do not measure success by opening the oven every 2 to 3 minutes to see how things are going. Instead, we give the oven time to work, checking only periodically to make sure everything is on track (and to make any necessary adjustments).
When it comes to your portfolio, don’t judge success on a quarterly or even annual basis. Instead, focus on how you are progressing toward your goals, including any life changes that may impact those goals. This helps you to stay focused and not let short-term market fluctuations affect your emotions and compromise your future. Trust the process and your plan, and don’t open the oven all the time. That way, there is only one turkey involved.
This article is an excerpt from a new book, “27 Principles Every Investor Should Know,” coming out in early 2019.
By Dan Roam