Just two weekends ago I completed the Ironman Malaysia Triathlon, held on the beautiful but brutally hot island of Langkawi. A good friend of mine who did the race with me called the extreme distance race a “metaphor for life,” in the sense that no matter how nasty it gets and how empty we feel, the only thing to do is just keep moving forward. Obviously I had a lot of time to think during the long day, and the parallels between this and preparing for our financial futures are many.
No doubt most if not all of us, on the long journey from the start of our working lives until the great finish line of life we call retirement, will face challenges, make mistakes, and just basically get fed up with it all. I know I have made far more than my fair share of investing blunders, and at times I have wanted nothing more to do with the financial markets. Yet old age and the day when we will no longer be able to work and generate income is a reality that we must face, no matter what happens to us along the way.
The key to arriving to our golden years in a financially comfortable state is to keep on investing throughout our working lives as much as possible, and especially in the times when we are most tempted to quit and just give up. Anybody who makes monthly contributions to a stock market based savings plan or account feels the pain of the market crashes that inevitably come multiple times throughout our working lives. Yet even though we see our valuations or account values drop significantly during these periods, they are actually when we are getting the most value on our current contributions.
Ignore the knee jerk reaction to drop out of the race, or you will forever look back in years to come with that dreaded thought, “if only.” When the going gets tough, the tough get going. The best thing to do when markets crash is increase your monthly contribution amount or add a lump sum that’s been sitting in the bank waiting for a good opportunity, yet the bulk of people I come across do the exact opposite. Stock marketing investing is really as simple as the old adage “buy low, sell high,” yet our fear and greed based instincts tempt us to do the opposite.
The best way to maintain the discipline required to get the best out of your investment efforts is to prepare for and expect the inevitable, so it does not come as a surprise. While it feels great to see your account value rise in a bull market, do not count your chickens before they hatch. Realise that it is temporary, and that at the end of the cycle you will see another temporary situation arise where you cannot liquidate your portfolio without suffering big losses. However, if you know in the back of your mind that within 5-10 years after the crash your account value is almost certain to surge again to new highs beyond what they were in the last peak, you will know that the right thing to do is hold steady and even add to your nest egg in those difficult periods.
Just as with the Ironman, financial planning requires long term thinking in order to avoid the many pitfalls and errors that are so easy to make. Over the course of time some errors and mistakes will be made, but do not let them discourage you or make you give up hope. No matter how bad it seems today, every situation passes and if you stay in the game there will always be good times ahead. And when you feel good, remember not to do anything stupid that could jeopardise it all. In my view today’s market are not at levels to be taking big risks, but rather at a place where we need to be mentally preparing for the next painful phase of the recurring cycle that always comes. Make sure when it does that you keep your head and stay the course towards your long term planning objectives.
David Mayes MBA provides wealth management services to expatriates throughout Southeast Asia, focusing on UK Pension Transfers. He can be reached at david.m@faramond.com. Faramond UK is regulated by the FCA and provides advice on pensions and taxation.
