War, inflation, interest rate hikes, and talks of a recession have weighed heavily on the financial markets this year. A perfect storm of events making the arrival of your monthly investment statements a frightening event.
The panic that sets in may sound like:
Times like these call into question the entire premise of investing. If the additional deposits you have diligently socked away this year have done nothing but go down, you may be wondering “What’s even the point of investing???”
But the thing is, successful investing requires time. And although this past year of volatility may carry a stress factor equivalent of ten years. In terms of historical stock market performance, one year is too short to judge what the markets can do. As you have heard time and again when it comes to investing, patience is key. Strictly basing your opinion on the dark days of a bear market misses the full picture. The market needs time to show you what it can do in a full cycle – letting both the bull and bear play out.
And so this calls for a perspective shift to save you from the panic and fear-based thoughts. And the shift is this, if you zoom out and look at a long term graph of the stock markets it shows an upward sloping line. Yes there are dips and valleys that mark past declines, but still, the returns of the market have maintained an upward trajectory over the long term. Proving that the markets have rewarded long term investors with positive returns.
And there lies the answer to the question “why invest?” Because investing can help grow your wealth through the power of compounding. But compounding needs time to do its thing (and the more the better!) Let’s say your goal is to have $1 million dollars. If you’ve lost faith completely in investing and decided to simply save in order to reach this goal, by putting away $1000/monthly it would take you just over 83 years to get to the million. But… I’m sure you also want to be alive and in good health to enjoy your million, so that just won’t do. If instead, you were to invest $1000/monthly, and if your investments were to grow at a rate of 9% per year, you would get to your million in just over 23 years. Yes you just saved yourself 60 years by investing! AND in the savings example you literally had to save up and put away one million dollars to achieve your goal, but in the investing example you only had to save about $286,000 and the compounding did the rest.
Hopefully this has reignited your belief in the power of investing. But if you still feel unnerved by what has unfolded this year and wish there was something you could do, let’s fix that. First you must acknowledge that you cannot change what is out of your control. And unfortunately a lot of what is going on in the economy right now falls into that category. Your time and energy are best spent on what you CAN control. So what can you do for your money during these turbulent times?
This money acts as a safety net for you and your family. If you have an emergency surplus ready and available, you can accept the ups and downs of investing as it won’t have a major impact on your short-term cash needs.
Compounding interest is great when it is working for you, but working against you it can add years to paying off your purchases. With rates on the rise you don’t want all your excess cash going to interest payments.
Neither you nor I have a crystal ball to guide us on buying at the absolute market bottom. If you can add to your investments on a recurring basis you will be able to catch some of the ups and downs and smooth out the volatility.
Money is nothing in itself, but when used as the tool to make your dreams possible that is where its utility is maximized. Checking in on your progress towards financial goals can provide peace of mind as to where you stand and if you are still on track.
Being in a constant state of worry or stress is a lot for your mind and body to carry. You have every right to feel whatever it is that is coming up for you about your financial life. But then acknowledge that you have to let those negative emotions go because staying in them may cause more harm than good.
This year has been a wild ride to say the least. But investing still serves an important purpose in helping you grow your wealth. Acceptance of what you cannot control is key when it comes to your money. The good news, on the flipside there is also a lot you CAN do for your money. Stay focused on what you can control. And don’t forget about the possibilities, there are no limits on your money journey!