Investing and Baseball
When you’re a young investor, it makes sense to swing for home runs. They can help get you ahead in your career and boost your savings. The downside or risk to always swinging for home runs is that your chances of striking out increase. When you’re an older investor, especially one that will need to start living on fixed income and your nest egg, those home runs become less important. Instead, a mind shift should happen where you begin to focus on consistently hitting singles and doubles because looking for regular contact with the ball can limit the chances of striking out.
When you’ve stopped working or are about to stop working, those strikeouts can lead to altering your retirement picture, whether that’s working longer than you hoped, decreasing the amount you can spend in retirement, or just having extra anxiety worrying about your money lasting the rest of your life. It’s at this point where investing is less about beating the market and more about creating a smooth investing journey with singles and doubles, and protection on the downside from strikeouts.
Why Do We Focus on Limiting Strikeouts
If the baseball analogy isn’t working for you, let us tell it to you straight: When you are about to retire, market downturns of 20%, 30%, 40%, etc. can severely damper your retirement. At FSA we find that it is much easier to recover from a 10% downturn than a 25% downturn. The math of percentages shows that as losses get larger, the return you’d need to generate for your account balances to recover increases at a higher rate. For example, a 10% loss requires an 11% gain to break even, whereas a larger loss, such as 25%, requires a 33% gain to break even; a 30% loss requires a 43% gain to fully recover. See what we mean? And when you’re older, there’s no guarantee that you’ll have enough time for the market to recover 33% or 43%. In the Great Recession, the S&P 500 took six years (from 2007 to 2013) to recover back to all-time highs.
So, why does FSA focus on getting those singles and doubles and try avoiding strikeouts in our portfolios? After 40 years of being in this business, we’ve learned a thing or two about clients’ investing psychology. When you’re utilizing your investment assets to cover your retirement expenses, watching them dwindle during a market downturn is an extremely hard pill to swallow. Everyone has an “uncle” threshold when it comes to pain, and that applies to investing, too. Over the years, we’ve learned that clients want us to react when markets get gloomy.
We liken it to being at the beach. When the weather is sunny with little clouds, we go out deep into the ocean (in this scenario the ocean is the stock market). But once the weather changes and the storm clouds come in, our clients want us to swim onto shore and into safety. And we are comfortable waiting there on the beach (in cash, money markets, or bonds) until the trends change and the storms begin to clear. Then we will inch our way back into the depths of the ocean.
Who Do We Serve?
Well, based on what we’ve told you so far, you may think that we only work with pre-retirees and retirees. While, yes, that includes a lot of the clients we work with, investments are only one piece of the financial planning puzzle. We believe everyone should have a financial plan, so we work with people in all stages of life. FSA helps people securely retire, plan for paying for their kid’s education, make the right decision on buying a home, and educate them on how to start investing.
When putting a puzzle together, what’s the first thing you do? It’s not building the boarder or organizing the pieces; it is looking at the picture on the box to determine what you’re looking for. That’s financial planning! We help answer what you are working towards, then we drill down into those puzzle pieces and help make the best decisions so the life you want can come true.
Interested in hearing more? You can send an email to Questions@FSAinvest.com or click here to schedule a call with one of FSA’s CERTIFIED FINANCIAL PLANNER™ professionals.
FSA’s current written Disclosure Brochure and Privacy Notice discussing our current advisory services and fees is also available at https://fsainvest.com/disclosures/ or by calling 301-949-7300.
