4 Key Truths That Lead to Investing SUCCESS
Many of us have heard the phrase, “Luck favors the prepared.” I suggest a different idea:
“SUCCESS favors the prepared.”
Every person defines success differently… whether it means the open doors of opportunity, personal accolades, a substantial financial foundation, wealth in the form of relationships. The one common theme among these varying definitions of success is the intentional planning and action required to realize that success. Strong relationships don’t materialize because you wish them to. They are the product of time invested in people. The same is true of a strong financial house. It is the product of intentional action toward stated financial goals. And that requires a thoughtful plan.
Core Elements of a Solid Plan
As wealth advisors, we have seen a fair number of financial plans. The most successful ones – the ones that withstand whatever is thrown at them – have a few commonalities:
- Stated Measurable Goals
- A Diversified Financial Foundation Built on a Disciplined Investment Strategy
- Support from Experts to Assess & Develop Solutions to Key Challenges
It is exceptionally difficult to avoid all turmoil in life. Trials, tribulations, and unsteadiness are around us at every corner. Yet, success in our financial journey requires that we have a strategy to combat this turmoil and maintain resilience in the face of it.
During this particular season, the turmoil du jour is in the form of political uncertainty. Like many things in life, this challenge is merely a variation on an age-old theme: unchecked fear and anxiety over upsetting events can activate our most human instincts of “fight or flight”. When it comes to experiencing fear around investing – even the most seasoned investor can be moved to “flight” if their emotions take the driver’s seat. This is almost always to their financial peril and lasting regret. This is why it is important to have a disciplined investment strategy in place to guide and keep you seated throughout all market cycles.
Enter: The Disciplined Investment Strategy
“The first rule of compounding is to never interrupt it unnecessarily.” – Charlie Munger
TRUTH #1: Negative events cannot have lasting impact if your plan remains intact.
- Your stated, measurable goals are the guiding light of your plan.
- The plan is designed to aim toward your most important goals.
- Once an investment plan is designed and implemented, it will work most effectively if you have the patience and discipline to stick with it.
TRUTH #2: Significant market declines are a normal and expected part of investing. Your disciplined investment strategy incorporates the expectation that market declines may be precipitous at times.
- 1 in every 5 years since WWII, broad stock markets (as measured by the S&P 500) have declined an average of nearly 30%, so we expect stock markets to go down roughly 30% every 5 years.
- Three times in the last 50 years, markets have declined by about 50%.
- The stock market has compounded at 10.7% per year since January 1973.
Our conclusion? Broad market declines are temporary (and necessary) for long-term advances.
TRUTH #3: Historically, it has been far more fruitful for long-term growth to be an owner versus a lender.
- To be an investor in the stock of a company is to be an owner. To be an investor in the bonds of a company is to be a lender.
- Historically, long-term investors have been rewarded for taking on the risk that comes with stock ownership. Owners of companies have compounded their wealth at rates that far outpace those that lenders have grown their wealth. For example, over the last two decades $10,000 invested in the US Stock Market (via the Russell 3000) would have grown to $51,870 versus an investment in US Bonds (via the US Bloomberg Aggregate Bond Index) that would have grown to only $18,860. That’s nearly three times the growth!
TRUTH #4: Prepare to be an opportunist, not a victim.
- If we know that market declines are a part of investing, come regularly, and are planned for, the smart investment strategy provides for an approach that capitalizes on the opportunity a down market provides.
- Historically, the stock market’s very best days come very quickly on the heels of the worst and most highly panicked days.
- As institutional investors, we understand that there are greater factors at play when the market moves. We are able to help our clients maintain their disciplined strategy because we see the playing field without emotion. Our approach has planned for these times and see them as opportunities to buy shares of the good companies when they are ‘on sale’.
How does one experience a successful financial life journey? Preparation.
And your Sterling Team is here with you all along the way providing expert guidance, solutions and collaboration. Thank you for being part of our family.