Living and Functioning with Uncertainty
Last week, we left off with a very important question (actually three) that I’d like to dig a little deeper into today.
To refresh our memories, let’s quickly review the Lesson of 2012 Questions:
At various points in time during 2012, it was widely reported that any one or all of the following were at crisis levels that could lead to a market crash and threaten your long term financial security if you didn’t react appropriately:
- the fiscal cliff,
- the election,
- subprime derivatives,
- the deficit,
- the national debt,
- high speed computerized trading,
- the Eurozone,
- etc., etc., etc.
Q1. As we stand here today in the beginning of 2013, did any of them significantly derail your long term financial plans?
Q2. If they did, why did they?
Q3. If they didn’t, why didn’t they?
Living with Uncertainty
Each of these issues is an example of “Uncertainties” that we are all confronted with on a daily basis. And, the mass media does a brilliant job of pushing the panic button on every one of them in order to garner our undivided attention.
This will never change and there is no way to control what they throw at us each day.
However, what we can and must control is our emotional response to them.
The future, by its very nature, is filled with uncertainty. There’s just no way of getting around that fact.
However, living and functioning with uncertainty is the dominant prerequisite to successful investing. And, it’s the difference between those who allowed these ‘crisis issues’ to derail them vs. those who remained rational and calm.
As retirees who don’t have huge fixed monthly pensions to comfortably support us for the rest of our lives, we need capital markets to help us maintain our lifestyle in spite of rising costs.
What this means is that earning a carefully calculated investment rate of return is not something that would be “nice” to do. It’s an absolute MUST in order to have our assets produce lifestyle sustaining income.
Forgetting Current and Historical Facts
Going back to our three questions, if any or all of the reported “crisis issues” derailed your long term plans, it’s because you allowed what was reported on that given day to outweigh current and long term historical facts.
For example, a few current facts:
- corporate earnings and cash flows continue to be at all time highs,
- companies’ cash positions, as a percentage of total corporate assets, are currently the highest they’ve been since the 1950s,
- corporate dividends, after being cut during the 2008-2009 crisis, have now resumed their historical pace and have compounded around 5.5% since 1935 while the CPI (consumer price index) has risen 3% over the same time frame.
Looking back a bit, here’s small sampling of a few others:
- the average intra-year decline in stock market prices is 14% (i.e. it’s “normal” for prices to move a bunch during any given year just as they did in 2012),
- the stock market has declined close to 30% on average every five years,
- in spite of those two facts, the price of the S&P 500 market index has risen 79 times in value since 1946 (i.e. over 66 years which happens to be the age of most of our members when they join our program),
- note that this price increase does not include dividends reinvested.
I fully recognize how difficult it is to read and hear what appears to be devastating news on a regular basis. And, how difficult it is to put these ‘events’ in historical perspective, thus allowing you to remain disciplined and rational.
With that said, it’s imperative that you adhere to a system of evaluating current events and what they mean to YOU in order to maintain proper perspective.
If you don’t, you’re at the mercy of anyone and everyone who shouts the loudest on any given day.
This is the reason why we designed The Relaxing Retirement Coaching Program™ which was carefully crafted to empower you to make intelligent, rational, long term planning decisions in all market conditions.
Next week, we’ll be discussing each step in The Relaxing Retirement Formula™ so you can maintain the confidence you deserve to live exactly the way you want no matter what is reported today!