“[The stock market is like] an excitable dog on a very long leash in New York City, darting randomly in every direction. The dog’s owner is walking from Columbus Circle, through Central Park, to the Metropolitan Museum. At any one moment, there is no predicting which way the pooch will lurch. But in the long run, you know he’s heading northeast at an average speed of three miles per hour. What is astonishing is that almost all of the market players, big and small, seem to have their eye on the dog, and not the owner.”
Those are the words of legendary American investor, Ralph Wanger.
The analogy here is quite clear: in the short-run, there’s really no telling if your investments in stocks will go up or down.
Most of the time, it seems like your investments are uncertain or volatile, but through decades of wars, recessions, elections, and revolutions, stocks have historically maintained a steady upward trend.
The only problem with it? How our minds have been trained when it comes to money.
In Ralph’s analogy, we are always watching the dog, looking for moments of opportunity to invest or for clear signs of danger to avoid and pull our investments. We’re not focused on where the owner of the dog is going. We generally don’t give it enough time. This behavior seems to be hardwired into us and even some of the world’s most savvy investors fall into these traps, but certainly nothing that money mantras can’t fix.
If you’re worried about the stock market, try using these three money mantras to help you when it comes to your investments.
1. Focus on long-term investing
The immediate question for most people is how long is actually considered long-term? Well, here’s some perspective when it comes to time frames: if you’re investing for five years or longer, there have been very few five year periods with a negative return. If you’re investing for 10 years or longer, there have been virtually no negative results. If you’re investing for 15 years or more, there has never been a period when major North American stock markets did not yield a positive return.
Here’s a chart of the largest U.S. stock market over the past 20+ years. Despite the massive tech crash of 2001 and the global financial crisis of 2008, a $10,000 investment back in 1999 would still be worth about $35,000 today. The ultimate lesson here? Focus on being a long-term investor.
2. Stick to your financial plan
Imagine if you had invested the day before a huge bull market and sold the day before it crashed? You’d be rich. But what’s not so obvious is that, even if you didn’t have an imaginary crystal ball and all you did was invest a steady amount every month through thick and thin, you’d very likely still be rich.
The reason behind this is something called dollar-cost averaging. When you have a plan to invest every month no matter what, you’ll pay a bit more when the market is up, but you’ll get a bargain when the market is down. When you average it all out, you’ll almost always come out on top.
You could have followed this strategy through all four major stock market crashes since 1972, and you’d have made more than 12 times your money by now. All you have to do is stick to your plan – especially when it feels uncomfortable.
3. Focus on what you can control
Unfortunately, you can’t control which way the market will go or even when, but what you can do is control things like the monthly contributions you’re putting aside, your budgeting and spending habits, the fees and diversification of the investments you choose, and what types of insurance coverage you’re putting in place to protect your income.
Here at Savology, not only can you get a free, holistic financial plan in five minutes, you’ll also get a free financial report card with the purpose of showing you the exact areas where you have opportunities to improve your financial health. These are areas that you actually have control over.
The bottom line is this: focus on making frequent contributions, controlling fees and taxes, and then fluctuations in the market will become less meaningful than you think.
Putting these mantras to work
Even if you watch the owner instead of the dog and discipline yourself to follow these three money mantras year over year, there’s still a deep part of many of us that get a little bit anxious when our investments go down in value. This is perfectly normal, and truthfully it’s expected. By following these three money mantras, you’ll start to discipline yourself when it comes to your finances and build better behaviors so that you can reach your retirement goals on-time and with confidence.