The Cost of Worry
The front page of the Boston Globe on April 25 had a good piece written by Robert Weisman, titled, ‘Older generations have an eye on retirement, and on stock market gyrations”
The past nine years has been a relatively easy time to be an investor. Stock market gains have been plentiful, volatility has been manageable, and interest rates have crept lower. For many, inertia and greed have been stoked. Then, without any advanced warning, the conditions change.
Since late January of this year, the market has returned to more normal environment. It's actually going up, and down. Although historically very normal, for some, the volatility has led to an uptick in the 'worry department.'
Here were reactions from two different investors mentioned in the article:
“When I’m home, I’m watching [financial network] CNBC all day and I’m checking my portfolio three or four times a day — in the morning, before lunch, after lunch, and after the close,” said financial consultant Andrew Hurvitz of Hingham. Hurvitz, who turns 50 next month, is looking for a full-time job, and managing his investments as well as his mother’s.”
“At least once a day, B.J. Herbison, a retired software developer in Bolton, logs into his home computer, sometimes with his pet ferret perched on his shoulder, to view the Dow and the Standard & Poor’s 500 and reassess his financial prospects via an online calculator. The estimates it serves up vary wildly from day to day, but Herbison, 58, said he tries to take it all in stride.”
Most conversations around investing can be measured in a straightforward manner. Returns. Fees. Taxes. Distribution rates. But how does one measure worry? What is the cost of worry? And at what point does the worry outweigh the benefits of staying on that track?
If one’s personal financial situation is a mess, they should worry. Not saving in a retirement plan? You probably should be worried. Not paying down student debt effectively? It would make sense to worry. No real plan with an investment portfolio? Yes, that should lead one to worry. All of your retirement account in cash/bonds, needing to fund a three decade (plus) retirement? I'd worry about outliving my money. Three young kids at home with significant debt and no life insurance? Worry!
Worry, in many cases, can be a motivating catalyst to start implementing the financial habits and building blocks necessary to get on the right track. Worry is a good thing when actions completely within one's control have not been taken.
But at some point, once good habits are in motion, worry should dissipate. If great habits have been built up over time that have increased the predictability of financial independence, don't worry about a temporary uptick in spending. If investment decisions are evidence-based and revolve around a greater good (a plan), don't worry about the what the stock market is doing today. If one has saved and planned at a high level for 40 years, don't worry about spending that money to live a wonderful life in retirement.
Accept that luck plays a much larger role in our lives than we tend to give it credit for. Sometimes, things happen that we simply could not plan for in advance. Don't worry about these things.
Contingencies, adaptation, and flexibility are all underrated. Don't be reliant on significant market returns to achieve a wealth accumulation goal. Have different steams of income that can be utilized at different times. Be willing to save a little more or work a little longer if going off payroll doesn't come at an ideal time. Sometimes, circumstances are beyond your control and trade-offs need to be discussed.
Daily stock prices, commentary and news consumption are all overrated. It doesn't matter how many points the Dow Jones was up or down today. It doesn't matter if the Federal Reserve raises interest rates at their next meeting. It is all noise, completely irrelevant to a personal situation. Advice to myself at 22 would be to read more books and watch way less CNBC.
One of my favorite Nick Murray lines is if you're worried, you're not really wealthy. Using mental bandwidth concerning the day-to-day fluctuations of the stock market during retirement is not a worthwhile use of time. We're all different, but I would say to do whatever is necessary not to be in that position at 65 years old.
Put simply, take on enough market risk to accumulate wealth, fund a multi-decade retirement or pass wealth to the next generation. Don't take on so much where you worry every time the market goes down. Poor decision-making within these worrisome moments will always cost more than simply a bad stretch of market returns.
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Source: Robert Weisman, Boston Globe "Older generations have an eye on retirement, and on stock market gyrations”
