I've Lost X
"I've lost $5k." "I've lost $100k." "I've lost $500k." I've heard all of these lines over the past few months.
Despondent when the account balance retreats. Enthralled when it goes up. For the sake of what, exactly? All of this focus on accumulating, very little on utility.
And boy do we communicate in dollar amounts. Never percentages. Your account isn't temporarily off 15% for the year. YOU'VE LOST $100K. And these dollar amounts are fluctuating more than ever, because portfolios were larger than ever heading into 2022. 10% on $10k is $1k. 10% on $1m is $100k. Big difference. And it resonates accordingly.
The greed and fear cycle tied to investing is imbedded in human nature. We are hard wired to think this way and it's really hard to overcome. All while the cost of living has exploded this year. I get it.
The example below is not reality. It's way oversimplified. Portfolio management and retirement income planning is a fluid process, not a snapshot set in stone. That said, let's run through it.
Let's say you're in the, "I lost $100k" camp. Your IRA was worth $700k late last year and has suffered a temporary decline to $600k. For argument and simplicity sake, let's assume you can sustainably take 3% annually from the portfolio, adjusted for inflation, over the course of your lifetime. A $21k annual distribution (3% of $700k) was revised down to $18k (3% of $600k.) Good news - no. Devastating? Hardly.
This is where planning typically imbeds better behavior. It's a thesis, a light to see the forest through the trees. Without a broader understanding of where a particular portfolio fits and how it's going to be used, investors become completely tethered to an account balance instead of aligning these resources to support of a great life. If we spent the energy on the latter that we do on the former, we'd all be better for it.
Both from a time and qualify of life perspective, stop checking your account balance every day. In good times, and in bad. It's taking much more than it's giving. Embrace the market volatility as the cost of doing business, adhere to a plan, and spend more time thinking about how you'll use this money to live a great life. And guess what? You can't afford not to invest in the manner you are, given return requirements necessary to sustain spending over the next 30 years.
You didn't lose $100k. Your portfolio is temporarily off 15% on the year, which is perfectly reasonable within expectations set and overall planning needs. You have health and people who love you dearly in your life. And you can't wait to take an upcoming portfolio distribution to take the people you love on an unforgettable trip over the summer. What can be better than that?
