The Market Always Goes Up
Episode 193
Episode Guide
Episode Timestamps
ChooseFI Podcast Episode Show Notes
Episode Title: The Market Always Goes Up?
Hosts: Brad Barrett and Jonathan Mendonsa
Episode Summary:
In this episode, Brad and Jonathan discuss the unpredictability of market performance and the importance of maintaining a long-term investment strategy amidst volatility. They emphasize the significance of a long-term mindset and the psychological advantages of dollar-cost averaging, while also addressing common emotional responses to market fluctuations.
Key Takeaways:
- Long-term Perspective: It's essential to have a long-term mindset when investing, as the market generally trends upwards despite short-term volatility.
- Ignore Daily Noise: Reacting to daily market news can undermine financial plans. Stick to a well-thought-out investment strategy.
- Emotional Investing: Avoid making impulsive financial decisions based on market emotions; decisions should be made in calm waters.
- Dollar-Cost Averaging: This strategy allows for consistent investment over time and reduces the emotional stress that can arise during fluctuations.
Timestamps:
- - Podcast Intro:
- - Discussion of market predictions and the concept that the market always trends upwards despite short-term fluctuations.
- - Emphasis on the need for a long-term mindset and ignoring daily market noise.
- - The dangers of emotional decision-making during market volatility.
- - Advantages of dollar-cost averaging as a consistent strategy.
- - Recommendation for CIT High Yield Savings Account.
- - Recommendation for M1 Finance Robo Advisor.
- - Podcast Extro:
Actionable Takeaways:
- Focus on your long-term investment strategy rather than reacting to daily market changes.
- Consider adopting a dollar-cost averaging approach to mitigate emotional impacts of market fluctuations.
- Set up an investor policy statement to guide your investment decisions effectively.
Related Resources:
- [CIT High Yield Savings Account](https://choosefi.com/slash CIT)
- [M1 Finance Robo Advisor](https://choosefi.com/slash M1)
Discussion Questions:
- What strategies do you use to maintain focus on long-term goals despite market volatility?
- Have you tried dollar-cost averaging, and if so, what was your experience?
- How do you ensure you don't make emotional decisions in investing?
- What is your approach to creating an investor policy statement?
- Can you share experiences where market predictions ended up being wrong?
These show notes encapsulate the essence of the episode and provide listeners with actionable insights to bolster their investment strategies as they pursue financial independence.
The Importance of Long-Term Investing Strategies
In the world of finance, the mantra “the market always goes up” serves as a crucial reminder for investors striving for financial independence. As you navigate your investment journey, understanding the dynamics of market performance and emotional responses to fluctuations will enhance your long-term wealth-building strategies.
Embrace the Market's Upward Trend
Long-term trends reveal that, irrespective of the market's short-term volatility, the stock market generally trends upwards. Acknowledge that historical context supports this claim: while individual years may experience declines, consistently over decades, the market’s trajectory is upward. Therefore, when engaging in financial planning, always keep your long-term mindset at the forefront.
Ignore the Noise
In a world inundated with hashtag #MarketPredictions, it's essential to filter through the noise. Daily market news can sway your emotions, leading to impulsive financial decisions that may not align with your long-term goals. Instead, your focus should be on crafting a robust investment strategy that withstands external shocks.
Creating an Investor Policy Statement
Establishing an Investor Policy Statement (IPS) is pivotal in ensuring that your investment approach remains unwavering during turbulent times. Your IPS should outline your financial objectives, risk tolerance, and investment strategy, essentially serving as your financial guide. Referencing this document when market uncertainty arises can help maintain consistency in your investment decisions.
Counteracting Emotional Investing
Successful investing is rooted in discipline and emotional control. Market fluctuations often evoke fear or zeal, which can lead to poor decision-making. Here are steps you can take to mitigate emotional investing:
Stick to Your Plan
Adhering to a predetermined investment strategy is critical. As you encounter market highs and lows, remind yourself that your plan was developed with both the risks and rewards in mind. Avoid making drastic changes based on emotional responses to market movements.
Utilize Dollar-Cost Averaging
Consider implementing a dollar-cost averaging strategy. This investment approach allows you to consistently invest a fixed sum over time, regardless of market conditions. By doing this, you alleviate the pressure of trying to time the market perfectly.
- Consistent Contributions: Invest regularly—monthly, quarterly, or with each paycheck. This builds the habit of investing and takes emotional decision-making out of the equation.
- Reduce Psychological Stress: As your investment grows over time, knowing you are contributing consistently can decrease the anxiety associated with market fluctuations.
Preparing for Market Downturns
Market downturns are inevitable, and preparing for them is crucial for sustainable wealth-building. Here are essential strategies:
Build an Emergency Fund
An emergency fund serves as a financial cushion during challenging economic times. Aim to save at least three to six months’ worth of living expenses in a high-yield savings account. This fund will provide security and peace of mind, enabling you to avoid drastic financial decisions when markets turn bearish.
Stay Focused on Long-Term Goals
Whenever the market dips, remind yourself of your long-term goals and the financial independence you are striving for. By maintaining this broader view, you’re less likely to make impulsive decisions during periods of volatility.
Key Takeaways for Long-Term Investors
As you navigate the complex world of investing, remember these key points:
- Long-Term Mindset: Cultivating a long-term perspective is crucial for effective wealth building and avoiding the pitfalls of emotional investing.
- Investor Policy Statement: Develop an IPS to guide your investment strategy, helping you stay on track despite market noise.
- Dollar-Cost Averaging: Implement dollar-cost averaging to consistently build your portfolio without the pressure of trying to time the market perfectly.
- Emergency Fund: Establish an emergency fund to provide financial stability, allowing you to focus on your long-term investment strategy without immediate concerns.
Conclusion
In a landscape filled with unpredictability and noise, fostering a long-term investment strategy remains a foundational pillar for financial independence. Prioritize planning, develop emotional resilience, and equip yourself with the necessary tools to thrive despite market fluctuations. Your future self will thank you for the consistent efforts you make today.
A look at investing during difficult times. Does the market always go up? And should you invest a lump sum all at once or slowly over time?
[elementor-template id="143609"]Silver Linings
Laura cut Brad's hair for the first time and it went really well! Brad doesn't think he will go back to getting professional hair cuts again.
MK is excited just to go pick up her grocery order from the store.
Brad's community had an art walk. The neighborhood set up tables at the end of the driveway and displayed artwork they had made. Brad's family set up chairs a few feet back into the driveway and neighbors could walk around and see everyone's artwork. It was a lot of fun.
The Market Goes Up
JL Collins often writes that "the market always goes up". Saying that yes, the market goes up and down over the short term but over the long term it always goes up.
He isn't saying that market crashes don't happen. He's referencing the fact that for the buy and hold long term investor the market is just about guaranteed to rise over time. We have to think in terms of decades, not quarters.
The stock market had a wild ride in March, with the low being when the S&P 500 hitting 2,237 on March 23rd.
On March 16th, Goldman Sachs predicted that the S&P 500 would get to 2,000, which would mean a 41% fall, by the middle of the year. On March 29th, Seeking Alpha predicted that the bottom of the S&P 500 would be around 1,400.
However, the market rebounded after March 23rd and the S&P 500 is sitting at about 2,700--as of April 13th. And now Goldman Sachs has abandoned their original predictions and is saying that we've already seen the worst of the market downturn.
The point here is that no one knows! No one can predict the future, and if you are investing for the long term, you have to ignore these kinds of predictions and just stay the course. Invest according to your own personal plan and be in it for the long term.
Check the episode about Jonathan's investor policy statement to learn more about getting our own investment plan. This will help you when the market is in turmoil.
Lump Sum Vs Dollar Cost Averaging
Brad realizes that his own brain interferes with his investing. He knows intellectually that investing lump sums makes sense mathematically he has a hard time doing it. Time in the market is better than timing the market.
Dollar cost averaging is putting in regular amounts of money over a set period of time. Such as, $1,000 on the 1st of every month. Brad prefers this method because then he's "just investing constantly". Rather than dumping all his money in at once.
Jonathan had a friend who was rolling over his 401(k) during the market downturn in March. This rollover wasn't instant, he had to sell the securities in his 401(k) and then a period of time passed while money transferred before he was able to buy again in his new account. So he experienced a loss, since the market fell during while his money was in cash. He's conflicted if he should buy now and just get back in asap or wait and see if the market is going to go down further.
This is a personal decision but Brad and Jonathan believe that time in the market is important.
Check out CIT for your cash savings, it is a high yield savings account that will earn you a great interest rate.
If you are ready to invest, check out M1 Finance. It's Jonathan's preferred robo-advisor and it's fee free.
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