I recently had a conversation with my youngest son, who is seven years old. “Daddy.” He says. “A few days ago I built a fort and it was fun.” “That’s great,” I tell him. “When exactly did you get to do that?” “Tomorrow” he replies, before correcting himself. “No, no. It was tonight. I mean yesterday.”
This exchange has been typical as Zachary learns where he and his (very important) events lie on the spectrum of time. Something from the past has occurred but putting it into the context of when exactly that took place (and verbalizing it correctly) is something he is learning to do. Understanding when something took place in the context of time is a bit of a challenge for him right now.
To me, this is similar to the perspective we can have with our investment portfolios and the markets. When market headlines are screaming for your attention, our frame of reference can be blurred. Let me show you what I mean. What do you think of when you see a point move like this (using actual figures from the popular Dow Jones index):
|Recent High (7/8/2019)||27,332|
Of course, we see a loss. And with investing, this type of loss is very common (approximately -6%). When we change the time frame, however, we could see the following:
|Three Years Ago (8/15/2016)||18,552|
So where are we? Are we in the midst of a 1,700 point loss? Or, are we somewhere near a 7,000 point gain? I don’t know if markets will go below that point from three years ago (before recovering) or not. No one can tell you that. But what I do know is when you set your belief in the future on sound evidence and look around (at your plan and your goals) and really understand where you are, it can give you clarity. Perspective, after all, can not only help an investor to sleep at night but can be the difference in making a mistake and putting your financial independence at risk (or not).
Please don’t hesitate to contact us if it would be helpful to gain clarity on any part of your retirement plan.
Past performance is not a guarantee of future results. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio nor do indices represent results of actual trading. Information from sources deemed reliable, but its accuracy cannot be guaranteed.
Pete Dixon, CFP®
Partner and Advisor