← Money for Life with Eric Roberge, CFP
Money for Life with Eric Roberge, CFP
Are Your Investing Expectations Aligned with Reality? What Good Investing Actually Looks Like
00:27:51
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- [00:04]
A
Want the opportunity to create Money for Life. We've got the strategies to get you there. I'm Eric.
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And I'm Kayleigh.
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And we help professionals and executives optimize their financial decisions so they can live well today, plan for tomorrow, and enjoy
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Money for Life on the Money for Life podcast. We're here to help you do the same.
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A
Welcome back to Money for Life. My name is Eric Roberge.
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And I'm Kayleigh Roberge. And we're recording this at the end of the quarter, which I think in our world means we're. It's time to sum up, like market commentary and, and give that to our clients. Because as much as we try not to focus on the short term and volatility in the market, we want our clients to be informed. Right. So I think it's a balancing act. Right. But to, to walk that line between talking about like, all right, here's what just happened. Here's what you should know. You know about your investments, your portfolio, what the market's doing, and you really shouldn't be worried about this stuff right now.
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A
The current events versus long term investment philosophy. I think there are two different angles at investment management. And a lot of people like to talk about the current events because that's in the news, it's flashy, it's what's top of mind, it's the headlines. And most of those headlines aren't really relevant for making major shifts in your investment strategy.
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B
Yeah, that really hints at what I wanted to talk to you about today, which is the expectation of what good investing should look and feel like. And the reality of that part of that is more focused on the long term and not getting wrapped up in the short term. And part of that too, like the expectation, I think everyone's number one expectation when they invest is numbers are going up, stocks are going up, portfolios going up good, stock going down bad. It's just, it's a very binary thing. And what people don't realize is that a healthy, functioning market system is actually going to ebb and flow. It's supposed to go down, it's supposed to go up, it's supposed to change as things change. So the reality is that volatility is normal.
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A
I think there's another layer of nuance in there too. It would be easier if people were just saying, well, it should go up, it should go down, or it's going up, it's going down. Then what it's more about, well, my portfolio went up this much. That stock or that investment over there went up even more. So I should have been in that one and mine was bad because it didn't go up as much as the other one. So it becomes this relative race and there's a chasing of returns. And obviously future returns are not going to be based on past returns, even though Money magazine would love to have you think that, because they show the 10 best investments of last year completely irrelevant for next year going forward. But people really get stuck on the relativity there.
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B
Yeah, I think chasing returns, that's, that's a key idea. You're chasing it, meaning it's in front of you, you are behind it. And the problem with that is you're looking at this big return. It already happened. Just because you shift over there doesn't mean you're going to be able to benefit from that. And in fact, a lot of times what happens is the opposite, because it's already happened, you are too late. There's this thing called regression to the mean where things tend to converge around an average. So if we expect the average return of the stock market to be something like 7 to 10%, just giving out a wider range, 7 to 10% over a long period of time, then that means you may see 30% return in one year, you may see a negative 20% return. But over time, if you zoom back out, those numbers are all going to converge toward that average. So when you have a big return or a big loss, it means the next quarter, the next year, it's probably less likely that you're going to see that exact same number.
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A
And the convergence to the mean is an interesting one because there are research studies that have shown that that's not necessarily the case for investment markets, that they don't always revert to the mean. And certainly the timing of the reversion to the mean is key. So even if they do, doesn't mean that they're going to do it next year, the year after that, five years from now, 10 years from now, it's over 30, 40 years. Maybe you get that reversion because there's an average and the average doesn't often show up in the annual return. Right. You'll get the 20, 25% positive, you get the 10, 15, 30% negative, and then the average is 8 or 10. So I think it's important to understand that the thought that if markets are at all time highs, which they happen to be right now, that they must need to come down next. That I think is where I'm saying you shouldn't follow that rule of, well, it's going to converge to the mean. So let's, let's assume it's coming down, let's sell out of the market, then buy back in once it drops. Because that is not the case. If you look at studies showing the S&P 500 after it hits an all time high and the next one, three and five year returns for the S and P, there's somewhere between 11 and 13% average annualized returns over one, three and five years. If you look at when the S and P drops 10% and then look at the next 1, 3 and 5 year returns, guess what, they're kind of the same, you know, somewhere between 10 and 13% average annualized return. So it doesn't matter if the market just jumped to its top or it just dropped a bit the next set of years, the expectation is positive.
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B
So what I'm hearing you say from that is you can't unlock some secret code to this. You can't say like, oh well, if this, then that. Because there is no it's. The market is not like laws of physics. There's not a predictable pattern that happens every time. It's not a system like that. It's much more complex and unexpected and unpredictable. So you can't use a simplified rule such as, oh, okay, it returned, whatever stock, whatever index returned 5% this year, so that means it must be doing double next year. You can't do that. But you also can't do the opposite of all right, great, this is going up, it's going to keep going up. Let me follow it. And these are all little holes that people fall into because they have an expectation of what investing is supposed to be like. When the reality is volatility is normal and you can't predict what's going to happen next, you can't time the market. It's only in hindsight that leads you to think that, oh, what just happened was obvious, but as it's unfolding, things move in non linear ways. And the influence that individual people have, that institutions have on the market, it's hard for you as an individual to be able to wrap your mind around all that and know what's going to happen next.
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A
That's true. And I think it all starts with your baseline belief of the market too. Because some people would approach this investment management topic at a technical angle where it's all about trading and volume and momentum and you're looking at charts and it doesn't matter what the underlying investments are or the indexes you're following, it's the Charts that are going to tell you what to do next and they are true believers in that and that they will die on that cross. I don't necessarily think that any one type of investment strategy very specifically is going to be the best all the time. But I do find that research shows that technical analysis isn't necessarily the best long term play. It could be short term investment management could benefit from technical. If you're trying to beat the market in a year, which probably isn't a good idea for long term investors, that could be an option versus fundamental analysis where you're looking at individual companies and their balance sheets and understanding their profits and their costs and their future potential and trying to bet on stock prices that are maybe lower than they should be based on the fundamental analysis that you've done that says this is a really good stock. Lots of work, lot of time. Warren Buffett, that's kind of his thing. And if you don't have a research team that can do that kind of due diligence, like you're in the companies talking to the founders and the people that are running the business and analyzing the industries like you, you just can't keep up with that. And then there's the just like, all right, the market is the market. I want to expose myself as much as I can to the stock market and go purely on an indexing approach. That's also a way to go. It's a very passive way to go. There's probably more optimal ways to go. But if you look at all those different angles, they're completely different angles in at the same attempt to solve the investment puzzle.
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B
I think you hinted at some there, but I wanted to ask you, like if you know this technical analysis charting, that's one way to do it. The deep research into companies to look at their balance sheets and the health of the company and what you think their outcome is going to be is another more the Warren Buffett approach. Why can't just a regular average person walking down the street, those things exist and they're successful for some people. Why aren't we all using them? Why aren't we all doing that? If there is kind of like, no, I do have a way to understand the market and to place these bets that are going to pay off.
- [08:55]
A
Well, I mean there's the ability to do it. One, one is the education around how to do it, two is the time to do it, and three is really the access to the people you need to talk to to get the information you need. And it's all publicly available information because you can't trade on insider information. But still, it's really hard to get that information. And then even if you get that information, it doesn't mean that the stock is going to do what you think it's going to do. You're still speculating that the stock is going to move in a direction based on the fundamentals that you're looking at. It's not like fundamentals are X. So that means that stock price is definitely going to be Y. Not exactly how it goes, because the markets still are based on billions of people making trades and assumptions and have expectations about where things are going and
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B
what you're saying there too. It's a risk capacity issue, because if you are a professional trader, if you're doing this as a business, then you probably have funds from somewhere. I'm not sure where you're getting the funds exactly. Maybe you can say that as well. But it's probably not like, here's my college savings for my kids. Let me go and use my charts to decide where to put this in the market. You're probably using some other source of funds than your own nest egg that you have to have. And you can't really gamble with.
- [10:10]
A
Well, yes, in a sense. So if you're investing with a manager and the manager has a specific goal, right. The goal of this investment is to X or beat this benchmark or whatever it is that is their goal. And whatever money they have to use to do that, they're going to put to use and they're going to make bets on doing that. And if they lose the money, well, they can just say, well, we tried and we lost it. But they're looking at it from a fund manager perspective, not as, this is my nest egg, this is my life savings. And so as long as they have the money to invest, they're going to invest in a certain way, whether it's a success or failure. In the end, it is what it is.
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B
Right. And that's why it's different than like you and your family. And why, Going back to that original question of if this is a way to invest in the market, why isn't it something that we're all doing? And it's because we don't all have funds of other people's money that we can use to make more money. It's we're having to invest our own dollars, our own savings in a responsible way. We have to be good stewards of this money. And that means, again, understanding your risk capacity regardless of how you Feel about the risk, maybe that's exciting. And it's like, oh, I want to do that. The risk capacity. The reality is you only have so much time. You have to have this money to make your goals work. If you lose it, you are not achieving that goal. And for most of us, that's kind of unacceptable when it's talking about, you know, taking care of our family, when it's being able to make work optional down the road. So that is why maybe the expectation of investing is like, wow, you know, this is exciting. So much is happening. I am using my technical stuff or I'm day trading or whatever that seems thrilling. When the reality is that it should probably feel like paint drying when you're investing appropriately for yourself at a personal level. In fact, paint drying, watching it might be more thrilling than your own portfolio potentially.
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A
And I think this is a major difference between a large asset manager, even investment manager, who is just an asset gatherer. People, you know, collect as much money as possible from people and invest that money and then try to have a good outcome versus a true comprehensive financial planner wealth manager like Vonder Hammock, where we're working with each individual couple and making sure that we understand the couple's goals and risk tolerance and entire financial situation and setup before determining how we're investing the money and making sure that those investment outcomes are aligned with the life goals of the client. And so that does mean that we're not going to get the biggest, best returns all the time and we're not going to wipe clients net worth out either, because that's very important to us to make sure that we are keeping the funds and growing the funds over time in a way that achieves life's goals. Not to say at the cocktail party that you got the best returns out there, because that is really a bad setup. Because a lot of times you'll say that and then more times you'll say, I lost it all.
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B
No. Well, that's not what you're hearing about at the party, right? Nobody's talking about their losses. Everyone wants to brag about, about their wins. You know, at a personal level, I think there's room for this as your risk capacity changes as you go through your life over time. If you're making more money, you're investing more money, your nest egg is growing, your net worth is going up, then you actually do have more capacity to take more risk with some of your money, not all of it. If that is something that interests you, there are other things that you can explore in Terms of, you know, maybe it is real estate, maybe it's angel investing, maybe it's purchasing art. All of those things could be perfectly valid depending on your interest, your expertise. If this investment requires some prior knowledge, and I would say real estate is a good example of that. Like that is not for just anyone to hop into and thinking they're going to be having a good time with that. It depends on your knowledge. It depends on what amount of your net worth you're using on this higher risk thing. So it's not an all or nothing proposition, but it's more about where are you with your money, what life stage are you in, what age are you, what's the timeline you have left, what have you been doing with your money previously, what are you doing with it now, and what do you need to do with it in the future? All of those things determine if and when and how much you can take on more quote, unquote exciting risks or get into more interesting investments. I think there is an opportunity for that. But timing matters, like the time of your life and where you're at with your finances, how you've been doing building your foundation that you can then reach out from.
- [14:39]
A
I'm just thinking about how this pertains to life. And I think a good analogy would be the chasing of returns. The trying to find the best returns and really party in the stock market is kind of like in your 20s, when at least in my 20s, I was looking for social life, I was looking for parties, I was looking for fun and the most excitement, the better. Right. Like that. What's my goal? And if I missed a party or if I missed a great event and I heard a story about it, I'd feel bad. I'm like, I didn't get there. I missed it. These days and a lot of our clients are in this boat. We have a business, we are working a lot. We have a child, a 4 year old, that is running around and we're trying to support her. And we have a lot of different priorities. So chasing the next big party and then being hungover the next day is really not on top of my list right now. Right. It's more about like true impactful experience. Watching a movie with our daughter or going to the beach or enjoying family time, having a birthday party. Those things very moderate. Not something that I'm going to boast about to my friends and they're going to laugh about. Wow. Those crazy stories of you at the bowling alley with your daughter, that's four, but that's the Stuff that really matters, and that's the stuff that is able to be consistent. It's able to last a long time. Like, that kind of life is sustainable because your energy is kept in check. So if you apply that same kind of thought to the energy of the money that you're investing and where it's invested in the potential for it to grow or not, but ultimately for it to achieve what you're trying to achieve, that middle ground hitting doubles all the time and then maybe swing for the fences every once in a while. Like, meaning that we don't go to parties. Like there's a one big bash of in the year. Great, let's do that. Let's keep things in check. Let's make sure that we understand what we need for our life from a sustainability perspective and then choose how to invest or live based on that.
- [16:31]
B
And I think in that example of like the life thing, like partying in your 20s versus being a little bit more muted now in terms of not chasing that, neither one of those things is wrong. Like, I don't think you would have been wrong in your twenties for seeking that out. That was appropriate for that time of your life. Just like now it's more appropriate to be home on a Friday night, you know, so that you're not having a bad weekend for the rest of the time. So I think that is really important and something I've feel like I've learned, like, the older I get, the more that I'm like, there is no wrong answer, man. It just all depends. Context is, is so important. And I think that goes for your life and your money, too. I mean, I think there are better or worse decisions that you can make, and there's certainly some guidelines you can follow. But as far as wrong or right, it's more about what's going to work and what's not. And that's what makes the idea of, oh, let me get into this super risky investment, you know, because I want to make these huge returns. It's not that it's wrong, but it doesn't work if you're not willing to say, all right, maybe I'm going to jeopardize all these things that I said were important to me to be able to afford if I take on this big loss. And I, you know, I don't. I can't get the time back. All the time that you spent building up your, your savings or your core investment portfolio, that's huge. So it's not that it's wrong to get into X, Y and Z investment or to want to do it. It's just does that work for the context of the rest of your life and the rest of your plan, yes or no and you know, kind of go from there.
- [17:55]
A
Yes. And that's where you just take into account really your. For a lot of people it's their liquid assets. Like what, what are their liquid assets look like? Their cash, their taxable investments, their retirement accounts. How much is that? Is it, Are you on track to achieve your long term goals through your retirement accounts and your midterm goals through your taxable account and your short term goals through your bank assets, your cash? And if so, you're kind of managing those three buckets. And then if you have real estate, you can add to that. So there's expansive choices you can make. So it's those three buckets where you have your liquidity access and your cash safe money that you can use right now. And then money that is going to grow, but maybe not as aggressively invested as the money that is for retirement, which is like 20 or 30 years down the road. And just base your choices on those three buckets and you fit your goals into each one. Between now and next year is when I have to achieve this goal. So that's a very short term one versus the five year goal, versus the 10 year and the 20 year goal. And then you just base your investment strategy on those different goal buckets and that will help you at least start to sort out where you can take huge risks and where you can't. But still, even if it's a retirement risk because it's 30 years down the road, doesn't mean you should invest in a way that you could lose everything. Because as you mentioned, you're building these assets over time as a compound effect. And if you wipe it out to zero and have to start again and you're not 25 or even 30, you're 40, 50 years old, you don't have the time, you don't have the bandwidth, you don't have the income capacity to be able to save enough money to get back to where you were in the next 20, 30 years, never mind having enough money to retire and live that same amount of time.
- [19:37]
B
Yeah, it's just a risk that you don't, you don't want to take because you don't have to take it. Right.
- [19:41]
A
Yeah.
- [19:41]
B
I think talking about the timelines gets us to another, I think expectation that a lot of people have and that we've covered before on this podcast in terms of defining what a long term investor is. But I think a common expectation is people are like, all right, especially when they're new. You know, I've been in here, I've been in the market for a couple of weeks. I can't wait to see those, those big returns, can't wait to see my money grow. And the reality is it's more like, oh, I've been in the market for a few decades, my returns are a reasonable 6 or 7% because I've written out this volatility over that time and I have the assets I need to achieve my most important financial goals, right?
- [20:15]
A
And in the end, that's what matters. If you have the money to achieve your future goals and you've achieved the goals that you wanted to along the way, you are not going to be mad because you didn't get a better return that your neighbor beat you in the stock market. That sounds like you might be mad at that before you have the ability to achieve the goals and experience your life the way that you want to live it. But in the end, it does not matter in the least. In fact, that's a really bad setup for success because you're going to be stressed out of your mind. One, because if you're investing in something that's going to have that big of a return, the roller coaster ride you're going to have to experience on a monthly, weekly, daily basis is going to be more than you want to handle when you have a life to actually live to.
- [20:57]
B
Well, I'm mentioning emotions. That's something we haven't touched on. We've been talking about how it feels like, yay investing, right? Like it's, it's thrilling, it's exciting, and that's what people expect. But I think there's also the expectation on the other side that a lot of people run into, which is kind of the negative feeling around it or the fear around investing, especially when things are in a down cycle, which is normal. But if they're thinking like, oh, the market is falling, like, what's next? The sky too, like, it's just immediate panic and they're just very wrapped up in that. When the reality is, like we said at the top of this episode, is that a market cycle, a normal market cycle, means going up, it means going down, it means things in between, it means stagnating. Sometimes it means doing things that we didn't think were going to happen.
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A
Emotions are a huge piece to the puzzle, and you don't understand how much control the emotions have until you're in it. And I say in it, in the crash in the market tumble, in the chaos that usually exists in the economy when the market is crashing, or at
- [22:01]
B
least headlines around it, right, which is
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seemingly one and the same headlines are happening then. Most of the time there's something going on that is crazy and the outcome is unknowable and there's panic and there's emotions. It's just a lot over the past, even 15 years, we haven't really experienced much of that. There's been the very quick panic in the pandemic that was a really bad one. We had a 2022 was a down year for a whole 12 months. But if you think back to like 2007, November 2007, the market peaked and started to go down. And then after it went down a bit in September 2008, it started to really tank into March of 2009 before it bottomed out. So you're talking about well over a year there, that the market was going down and headlines were bashing you in the head about this is bad, the sky is falling, everything is done, business are crumbling. Banks that you thought would never go extinct are gone. There was just so much chaos in the market that you couldn't have expected it, you didn't understand it, especially if you hadn't experienced it before. And we hadn't experienced that in a long time. Maybe.com was a little bit like that than back in the, maybe the 80s, but like the Great Depression was really the most relevant connector of experience to that. Right. And nobody was living at that point now. So there's an experiential perspective that we have not witnessed recently. So I think it's going to get really ugly when it actually happens. And people have to watch their portfolios in the market draw out for an extended amount of time, 12 months, 18 months beyond, and then not climb back to even for another two, three, four, five years. And that's going to really be putting your, your commitment to the test and your investment strategy for sure. Because now it's your real money, it's not there. And you still have these goals that are creeping in because you're getting closer and closer to the timeline of achieving those goals and your money is not where it should. What are you going to do then?
- [24:02]
B
I do wonder about that because I think about March 2020, it was almost like it didn't happen because it fell so violently, but then it popped right back up. The Great Recession, 2007, that started in 2007, 2008, I think that was definitely More prolonged. And maybe people who are in their 30s, 40s and older have better memories of that. But for people who are younger and haven't experienced a more drawn out downturn, both in the market and in the economy, which are two different things, I feel like it will be really, really tough. Especially as in the intervening years everybody's attention spans have gotten shorter. I think our demand for things to happen faster has increased with technology, with phones, even things like streaming. I was actually talking to someone the other day and they were saying, we watch TV as kids, but it feels different than now because you'd have commercials and you'd have shows that would come on that you didn't want to watch. So you go and you do something else versus streaming. Now it's just everything you want when you want it endlessly. And I think our minds have kind of been shifting that way. So I do wonder what will happen and how people will feel when inevitably the market goes through a longer downturn and doesn't do that sharp bounce back up that we've seen mostly when it has. Even in April and 2025 this year, when all the trade tariff stuff made the market a little wonky, it popped right back up really quickly. And at the end of Q3, you know, it was setting new record highs.
- [25:30]
A
Yeah, yeah, we've been very used to that and in the recent experience tells us one thing versus what is to be expected going forward of it's not going to always be like that. And buying the dip is going to feel a lot harder when the dip continues to dip and you don't actually know where the bottom of the dip actually is. And it's not a month from now, it's not two months from now, because every time you're like, oh, here's the bottom three months from now, four months from now, and you feel like maybe I shouldn't be buying this dip because the bottom keeps falling out on me. And you have to question your sustainability and your ability to continue to invest from both a financial capacity and an emotional capacity. And it's going to get really hard. But again, if you're investing in a strategy that is based on your long term goals, that builds in the expectations that those types of drawdowns are going to happen. And you know what to do during those drawdowns because you've talked about it before, the emotions set in and you're not trying to take advantage of the drawdown and you're not trying to run from the drawdown, you're trying to stay consistent during the drawdown that is going to give you the resilience you need to push through it all. And a good advisor is going to help you in that moment manage your emotions and continue to make the choices that you know deep inside you should be making, but you're very hesitant to make because it's real money that is being lost on a daily basis.
- [26:48]
B
Yeah, those are great parting words. Thank you. I think that's what we need to walk away from today with is a new expectation that good investing is grounded and sound strategy, and it's implemented with consistency, calm and confidence that you set the strategy you did for a reason. Thanks for listening to another episode of Money for Life, hosted by Eric Roberge, CFP and founder of beyond, you'd Hammock and me, Kaylee Roberge. Our show is produced and edited by Steve Stewart. If you want to learn more about wealth management and hiring your own personal financial advisor, visit BeyondYourHammock.com and now for the legal stuff. This podcast is for informational purposes only and does not constitute financial, legal or tax advice, and may not cover all critical, complete details of every situation discussed. The views expressed by guests are their own and do not necessarily reflect those of the whole host or the podcast. Please consult a qualified professional about your specific situation before making any financial decisions based on this podcast or any other educational content designed for a general audience.