← Money for Life with Eric Roberge, CFP
Money for Life with Eric Roberge, CFP
Understanding Long Term Investing: What It Actually Means and Requires to Work for You
00:40:44
Loading summary
Transcript56 lines
- [00:04]
A
Want the opportunity to create Money for Life. We've got the strategies to get you there. I'm Eric.
- [00:09]
B
And I'm Kayleigh.
- [00:10]
A
And we help professionals and executives optimize their financial decisions so they can live well today, plan for tomorrow, and enjoy
- [00:16]
B
Money for Life on the Money for Life podcast. We're here to help you do the same. Hello and welcome to the Money for Life podcast. My name is Kaylee Roberge.
- [00:27]
A
And I'm Eric Roberge.
- [00:28]
B
And today we're going to dive into a oft repeated phrase that you have absolutely heard before. But it's one of those things that you might feel a little challenged to clearly define. If someone asked you what does that mean?
- [00:42]
A
Yeah, the phrase is long term investor. When people hear that, they probably think, well, yeah, I'm young and I have a long time horizon between now and retirement. That's the basic idea. I think what they don't really put together is the reason we talk about long term investing as it relates to investment strategy and really the overlay of risk on the entire financial plan that we're building. And that's where it's a very gray area for people. And I think we can shed some light on that today.
- [01:15]
B
This idea of being a long term investor, it surrounds a lot of other very catchy phrases that you've heard before. As far as you know, when the market gets rocky, stay the course, stay in your seat, invest for the long term, keep calm and carry on. The data does show that the market rewards patient long term investors. See, I'm doing it right now, over time, taking that long view is the way to go. But the language can be confusing because one, Eric, as you just mentioned, people understand like, well, I'm young and I have a long time to go between now and retirement. But that's very abstract and it's very difficult to think in terms of something like decades of time when you may be 30 years old. So you're only halfway to where you're trying to get to, maybe depending on your plan. The other thing that I think is confusing about saying a long term investor and just leaving it as that, like leaving that as the advice for people of like, ah, you're a long term investor, you have time. That doesn't tell us what it actually means to be a long term investor or what to do about any of it. And it's really hard to just take the advice of like, all right, we'll sit on my hands and do nothing. That's often not very helpful and it makes it sound so Easy and simple when actually being a long term investor is a really difficult path it's hard to do. So to dig in a little bit more today we want to define what a long term investor really is. Put a number on that word long term and understand maybe why are we having this conversation at all. And that's probably a good place to start to figure out why do we have to invest at all? Why are we putting ourselves through this challenging process in the first place? If it's hard to be a long term investor?
- [02:54]
A
I think the best way to go about that just to start off with would be a visual. And looking at a graph is probably going to be the eye opener for people to understand. Oh, that's why I need to be a long term investor. Okay Keely, what do you see on my screen?
- [03:12]
B
I see a graph. It has three lines going across. One of them is a green line. It looks like perhaps an equity portfolio judging by the way it is leaping up to the top of the graph. At the far right end there are two other lines. One is orange, which is showing some steady growth but still at the very bottom of the x axis there and at the very, very, very bottom that's quite flat, there is a blue line going all the way across on that X axis. We're starting at what looks to be before the year 2000 and it might end or maybe that is the starting year 2000 and then we're ending at 2025.
- [03:51]
A
Yeah, generally correct. It's a 30 year time horizon. So 1995 to 2025, there's a green line that the one that is going upward to the right and to the top, that is an equity portfolio. There's a U.S. aggregate bond index which is kind of bumbling along toward the bottom and then even below that there's a cash representation. It's the Schwab Value Advantage money market.
- [04:18]
B
I can see that that money market one is the one that kind of just trails along the bottom of the graph. The bond one goes up a little bit over time. You can see some growth there. But, but far and away the equity bond is leaping high above. And so when I say high, like what is this measuring on the y axis from zero to says 1500?
- [04:40]
A
Well, percentage. So over over 30 years the equity portfolio returned a total percentage growth of 1270% versus the bond 266% versus cash 103%. Put in everyday terms, the equity portfolio essentially returned 9% average annual return. The bond index returned about 4.5% and cash returned 2.4%. And really to drill it home, if we look at investing $100,000 30 years ago in each of these portfolios, and I'm putting my hands in quotes because they're not actual portfolios, they're just representations here. But your $100,000 30 years ago in the equity portfolio turned into $1.3 million in the bond index portfolio, $366,000 and in cash, $203,000.
- [05:40]
B
So that underlines the point of why not investing is a risk in and of itself. Right. If we are opting out, they're not going to get that compound effect that is going to really grow your balance sheet if you want to create your own wealth. And keeping money in cash means that you lose the benefit of that compounding and you lose purchasing power over time thanks to inflation.
- [06:01]
A
Right. That's really important. And it goes to show that the long term investor, if committed to the proper portfolio, can really grow their wealth over time. Yes, they have to do the work to get the money to invest, but, but once they get the money invested, the growth rate on a properly balanced portfolio is going to do a lot of the work.
- [06:23]
B
I think this also underlines for me the idea that risk is everywhere. So the answer to, oh, you know, I don't want to lose money, it's not, we'll avoid investing then because you face risk if you're just hanging out in cash and not participating in the market. So the best path forward is kind of what you just said, Eric, is you get that right, risk adjusted strategy in place, that will get you through the volatility and the uncertainty, the ups and downs that we know you're going to experience in the market between now and then. And I think this chart too hints at the next portion of this, of defining like, all right, now we know why we need to invest. But why and what do you mean by long terms? I heard you say 30 years in there. That was what that chart was looking at, 95 to 20, 25. So is that what long term means? Like what kind of time frame are we really talking about when we're throwing around that phrase of all right, be a long term investor?
- [07:19]
A
Well, it's certainly circumstantial. I would say a general range is anywhere from 10 years to 50 years for human life. Just think about when you might start investing. Most people don't start investing until after college. Unless you're Warren Buffett and started at 9 years old and he's in, he's been investing for what, 90 plus years. So that's long term for sure. But I think you need to have a minimum long term range. And 10 years tends to be generally a long term number that we can count on and one that we can relatively expect the stock market to return a positive amount in the end on the decade.
- [07:59]
B
So a decade is the shortest possible quote, unquote long term that you are talking about?
- [08:06]
A
Yeah, that gives the market time to go up, down, left, right, do some circles and end up on top. There's no guarantees that the next 10 years you're automatically going to gain money in the market over the next decade. But generally accepted to be the case.
- [08:21]
B
Okay, and that's the shortest. What would you say is the ideal amount of time if you're talking about a truly long term time horizon?
- [08:29]
A
Well, depending on how aggressive you want to get. If you want an all equity portfolio, which I rarely recommend because I like to have a little bit of bonds in there, even for the Most aggressive clients, 20 plus years is a nice number because there is research that shows if we use the US stock market or even the S&P 500 over 15 year rolling periods, there's actually never been a negative 15 year period. So if you look back 100 years and you measure every 15 year period possible in that hundred years, it's never been negative. So when we start to go longer and longer, 10 years is pretty good, 15 years is better. 20 plus years is really great. And we have the utmost confidence at that point that an aggressive portfolio is going to return your money back to you, plus a lot of capital gain and dividends as well.
- [09:24]
B
That's part of why long term investing is going to be hard, because you're talking 20 years, you put money in and you keep putting it in for 20 years. So much changes in your life in one year.
- [09:35]
A
Year.
- [09:35]
B
One year can feel like so much time. And someone who's investing for five years can feel like, hey, I've been at this for, for a good long while now. But it's like, no, you're a fourth of the way there really. And ideally, probably you want to go beyond 20 years because that's the more time you give it, the more that you're going to benefit from a compounding effect. So it's hard to cultivate that kind of patience to sit and wait for your investment portfolio to, to do the work it can do for you. And you also have to, as you're sitting around waiting, you've got to feel what you feel about whatever's happening in the short term. And then not act on that emotion and instead stick with what the data suggests is going to be our best way to go.
- [10:19]
A
Yeah, and that's, that's the crux of it right there. Because people can say, yes, I'm a long term investor and we can agree on a long term portfolio and how it's supposed to look. Then something happens that moves the market significantly in a downward trajectory. Covid the Great Recession recently with tariff announcements, the market just dropped. Then the long term investor says okay, what should we do now? What do we have to do? Because this is a new situation, so let's make adjustments. And I think that's the fallacy. The idea is if you have a properly diversified portfolio and you are using a, you know, strategic asset allocation, sometimes called passive investment approach, then you really don't need to be adjusting in times of turmoil because you've built a portfolio that will work through that. It will lose money, but it will work through that time period and then grow after that.
- [11:18]
B
And you don't want to lose, it'll lose value. Right. And it's not losing money unless you're, you are tinkering, you're locking in losses you haven't actually lost. It's an unrealized loss that shows up correct.
- [11:29]
A
Your statement balance will look like it dropped because it did. You own shares that are valued at a lower dollar amount than they were before this turmoil happened. And tinkering with your portfolio during those times unless, unless you follow an active management strategy, which I don't think is a really good long term approach and history and research shows that as much then you really shouldn't be touching your portfolio much. Maybe some slight tweaks depending on your goals changing or your time horizon changing or some other factor that your, your thesis about the market is now different because new information has come up. All of that good reasons to change. Otherwise don't touch it.
- [12:10]
B
Is there an example that you have of truly what defines a change in your thesis versus a change in your feeling?
- [12:17]
A
Well, it might be something about an asset class that you considered a valuable source of growth in a portfolio. So for example, one asset class that we were focusing on just a small portion of an equity portfolio, maybe 2 or 3% at one point was frontier markets really, really small growing economies. They make emerging markets look advanced. Right. And emerging markets are much further behind than developed markets like the US or European countries and places like that. We thought that it was a good growth source that we'd add a little piece of exposure to in, in the portfolio and then eventually we said, you know what, based on the fact that there, there's really not enough liquidity, there's not enough funds to choose from. The one that we had selected was low ish cost, but wasn't really returning what we thought it would. And so we decided that it wasn't worth investing in that asset class any longer. So we removed that from the portfolio. Again, 2 to 3 percentage points here. Another one might be if you consider a new asset class, which oil was the first new asset class since before Bitcoin. Right. Bitcoin has been this new asset class that's come around, or cryptocurrency in general. If you now believe that cryptocurrency has a place in the portfolio, it was not existing, didn't exist 25 years ago, so you couldn't have put in the portfolio. Now it does exist and if you think, I'm not making a call on it for you, but if you think that that should exist, then maybe you have to adjust your percentage exposure to that and therefore bring down some other exposure because you need some money to put in the part of the portfolio.
- [14:01]
B
I think those are good examples, especially for what you didn't say about them, which was, I got out of frontier markets because something happened, like something crashed and I had to get out of it. Like, that's not the reason that you changed. It was in a calm time. You're able to assess like, yeah, this isn't lining up with what I thought it was going to be. Let me make a tweak. And also it's a tweak, right? Like you said, 2 to 3%. It's not a massive shift of portfolios in any one direction. It's a very subtle movement and it's not in reaction to some dramatic event that happened. Because I think that is also part of your wider thesis is we expect dramatic things to happen short term and that's not what we're going to make our decisions on.
- [14:42]
A
And that's really the challenge too, to staying committed. Like I said, when things happen, people say, well, what do we do now? And people don't want to. Human nature says you shouldn't just sit on your hands and do nothing because you want to survive. We were built to survive. So doing nothing in the past was probably not a good idea because you get eaten by a dinosaur these days. Doing nothing in the stock market might be your best bet to ride out some challenge that is happening in the short term. And I do want to share one more thing with regard to this. If I look at the screen that we were looking at, but then I'm going to switch from 30 years to year to date January 2025 to we're recording this in May 2025.
- [15:24]
B
The chart that you're showing here, it's much less clear, clear like what ends up being the winner because I can go all the way out to the end of the chart and no longer is there this one lone green line that's rocketing to the top. That green line has actually done quite a dip about three fourths of the way over on the chart. And at the very, very end, all the lines are kind of at the same point with, with bonds. It looks like being the one that's returned the most.
- [15:50]
A
Yeah, correct. That that same green line, that was equity that was just showing a mountain of growth for 30 years in five months showed a little bit of growth and then a huge drop into negative territory, down to 12% negative at 1 point and then came back up to 1% positive over the next month. So huge gyrations there. People can really have their emotions, go haywire in situations like this and then look back and say, well, if I just had it in cash, I wouldn't have lost anything and I would have made more because the cash says 1.37% and my equity portfolio says 1.21% percent. And that is the biggest hurdle for people when approaching this long term investor status and actually staying committed for the long term while you're dealing with the short term gyrations that make the market risky and provide you the returns you, you get in the market too. Right? There's no return without risk. There's no free lunch here. So we need to make sure we understand that, yeah, we're going to get long term returns if we stay invested, but we're going to deal with short term risks and they're going to show up every so often and we never know what's going to happen and when.
- [17:03]
B
Right. And there's real cost to jumping in and out of the market too, because this, this chart is very insightful because if you could have had this particular chart that shows you where we would be on May 1, 2025, if you could have had that in February, like, yeah, that would be great to see. Like, aha, it's so obvious. Let me hop out of my equity portfolio let to cash until this all blows over. And of course, nobody has that crystal ball. The only thing that you have is hindsight which can fool you into thinking that things were more obvious than they they were as they happened. So you don't reliably know when we've reached a particular bottom of a drop or a correction. When you try to move to cash, what usually happens is you do it after we've already hit the bottom. And by the time you're emotionally comfortable enough to move back into the market, you've missed that recovery, as the chart shows that you have here. Eric, the equity portfolio did drop and now by May 1st second, it looks like it's a, it's recovered from that drop largely. But do people feel comfortable? Like, as we're speaking right now, people are still nervous. Who's, who's to say it doesn't drop again? You just don't know. And by trying to jump in and out, toggle back and forth between cash to try to, you know, avoid the worst of it, all it does is lock in realized losses and cost you even worse than the loss. It costs you the opportunity to participate in the recovery.
- [18:32]
A
Correct. And then even if you just extend out one year, right now, this is just 12 months. We go from today back 12 months and this equity portfolio looks really like a rollercoaster ride. But also from point to point, 12 months ago to today is up over 10%, even though it experienced this massive drop for tariffs in April 2025. And in the bond portfolio is up 6% over the year and cash is up 5%. Right. So if you held cash. Yep. You wouldn't have lost anything and you would have made half as much money as the equity portfolio last year. Twelve months ago, would we have known what the return was going to be this year on any of those items? Probably not. Maybe you'd have a best chance at cash over a short term period, estimating what it might be. But you still don't know because we don't know what the Fed is going to do. We didn't know what the Fed was going to do over the past year with reducing interest rates or increasing interest rates or what was going to happen to inflation. And there's so many factors that can play into the adjustments of return expectations in equities, bonds, cash, whatever, that it's, it's a futile attempt at trying to gain some surety when you're speculating about what's going to happen next and then buying into your own speculation as if it's fact.
- [19:50]
B
I think what you can be most certain of, not 100, because there are no guarantees there. There are no 100% going to happen bets in life, I don't think. But what you can feel a bit more certain in is a long term strategy works because it's not about timing the market, it's about the time you are in the market. That's what matters. Because of all the things you were just saying Eric, the things average out in the long term to overall growth. We believe that efficient markets are going to grow in value over time. Even though we have the expectation of the short term volatility, we know that's going to happen. We're looking at the historical data that shows us an average return that looks good, that lets us meet our goals. So that's what we want to focus on is that averaging out in the long term to overall growth because no one knows when the specific event, you know, the next thing that's going to spark a downturn or a recession or correction or whatever it is. No one knows what that's going to be, when it's going to happen. We just know that markets are going to react as things do happen. And to date markets have also recovered. So is there anything in the data or is, or is there anything about being in the investment world for you that gives you the confidence to say that I'm going to rely on this long term average return? I expect it to be there for me.
- [21:09]
A
Yeah, the experience of it. You can do all the research and reading you want, but until you experience a major downturn, whether it's your own personal money or for us client money as we're invested in the market, you have not really understood how you're going to react to said downturn. And so now that I've been in the business for 20 years and invested my own money and client money, my first attempt into the market, November 2007 was exactly when we were peaking or starting to turn into the Great Recession. And I saw just a spiraling out of control headlines, just emergency neon light flashing, everything is falling. For the first two years of my experience as an advisor, from there we had a lot of upward markets. 2014 or 15 is a little bit shaky. 2018 came to be a little bit shaky at the end of the year, obviously 20, 20, 25. So like I've seen this happen over and over again and I've also seen what happens to people that get out of the market versus stay in the market. So it's not just the graphs here, it's actual dollars that I'm seeing on paper after experiencing all these different gyrations
- [22:22]
B
now that actually makes me think of an unlikely source for investment wisdom. My mother, I talked to her recently after all the tariff stuff in April 2025, that sent the market kind of going. And I just. I just sent her a text like, hey, how are you feeling? Because she's. Her and my dad are right around 60 now. They've retired, so they are no longer having an income. My dad has a pension, he's a firefighter for 30 years. And my mom pretty much just has her 401k that when she quit her job, she rolled over to an ira. So they don't have a paycheck coming in anymore. So this has been the first bit of market turmoil that they've experienced with kind of like all of their assets in the market without any more human capital coming in to. To support them. So I was in our section, I was just, you know, asking, like, how are you feeling? Do you want to talk through anything? Because she said before she's not someone who feels like she's very investment savvy. It's not her thing. She would rather, you know, just trust Eric, as you are her advisor. She wants to just defer to you, which I get. And I also just wanted to get kind of like an emotional temperature reading of where she was at. And what she said was, it's not pleasant. But I've seen it before. I watched my 401k fall through the floor in 2007, 2008. I watched it stumble around in 2002. The tech bubble. You know, she's been through that before and she's seen her 401k drop, and she's also seen it recover hugely. So she's got that experience. So she's been through it. She recognizes the pattern and she knows just. Just ride it out. It's going to be okay. And she also mentioned that when she was at her. Her last company, other employees, she watched them, they did panic. They were all running around like, oh, gotta move to cash, gotta move to cash. They were stopping their 401k contributions. They were pulling their money out. And then she would talk to them, you know, six months later, and they hadn't started their contributions back again. And some of them had just forgotten. They were so uncomfortable with seeing that initial drop that it scared them off. And so she knew how much worse off they were because it wasn't just that their portfolio had taken a dip. It's that they stopped contributing to it. And they had less investments, they have less financial power over time because of it. So I just thought that was really interesting that she was right on it. Of like, no, I've seen it Happen before. I'm all good, like, good for you.
- [24:50]
A
Yeah. I've also seen the long term investor be confident. Like, yeah, I'm invested for the long term, no problems, I'm not looking at anything. I'm just set it and forget it. The problem is they didn't set it to begin with. And so unlike maybe having to hold someone back from selling out of the market, this example didn't even invest it in the market, so was sitting in cash for the past 10 years and they're set in, forget it backfires when you don't actually invest it, then forget it. I think that's the key differentiator here. When you keep your long term investor mindset and you keep your money invested, you are ensuring that the initial investment is in the properly diversified portfolio that aligns with your risk tolerance, that aligns with your long term time horizon. And if you want to just leave it alone, make sure that it is leave alone in that you either have an advisor that is managing it for you to do all the tweaking as necessary, or that you pick some target date fund or some portfolio that will automatically reduce the risk. But stay diversified throughout your entire working years because if you don't have either of those two things, you're probably not invested correctly at all times for 20 plus years.
- [26:07]
B
That also reminds me of another story that we come across when all this was going on in 2025, April, the market's kind of going all over the place. People are a little freaked out, asking like, oh, should I not invest the cash that I have to invest right now? Should I wait? And I came across somebody who was saying they remembered having a conversation with their friend in the fall of 2019. So five and a half, six years ago, the friend said they had a bunch of cash, just didn't want to invest it because he felt like the market was too high. And I remember back 2018, 2019, how many headlines there were about is a recession coming? It's got to happen. Just because it hadn't happened in a while, you know, as far as that person knew, his friend was still sitting on the cash waiting for a crash. And it just, it hasn't happened. So six years of time that you're sitting on the sidelines again, going back to where we started at the top of this of like there is risk to not investing. Yes, there is investment risk, but there's just life is full of risk that you need to manage, not necessarily avoid, but to help you manage it. I think whether you're 30 years old or you're 60, you're probably a long term investor in the sense that you need to stick with your plan over the short term to see the results that you want over the next few decades. But that means you need a strategy to stick with in the first place. So can you walk us through maybe just high level, some of the hallmarks of what a long term investment strategy should look like? How do you actually build that portfolio that's built to withstand the volatility that we're supposed to expect? If we know that markets go through growth cycles and they go through downturns and something's going to happen to rattle the market and eventually it will recover.
- [27:47]
A
There's a couple different categories that you want to focus in on. The first is when do you need the money that we're talking about? So basically how old are you and when do you need the money? A lot of times that core need the money conversation is about retirement because that's when you stop working, you're going to need access to money. So the difference between your retirement expected retirement age and your current age is going to give you the years that you need to be invested for, which is going to be a major determinant of how much equity versus bond exposure you should have in your portfolio. That is your risk capacity. Essentially it's very objective category. But then you have to overlay that with your risk tolerance, which is your emotional capacity to take on risk. There's nothing to do with your time horizon or the amount of money you have. It's just, can I handle the ups and the downs of the market without pulling my hair out in selling the securities that I have invested? And so the combination of those two things is going to give you the breakdown between stocks versus bonds. And then inside of the stock and bond buckets, there's a lot of conversation to be had, a lot of advisors going to do things differently. But you can build an equity portfolio that touches the right asset classes on the equity side and then build one that touches the right asset classes on the bond side. Make them global or not. I prefer global because that's the best long term investment play in my book. And then you have to decide on how you're going to access those stocks that you set in these various categories. You can choose ETFs, Exchange Traded Funds, you can choose mutual funds, individual stocks and bonds, which is a lot more maintenance and difficult and probably doesn't make much sense for most people, but you can do it. And then you'd figure out Once you have that, how to implement and then how to manage those investments, depending on
- [29:41]
B
how you chose part of that management over time is going to be consistent. Funding over time is there. I think we've talked before about, you know, dollar cost averaging, having a set amount of money that you put in at set intervals of time. I think another part of it is when you have cash to invest, kind of like we were just talking about, don't wait because you could be waiting a long time, it might never feel good to get your cash in the market. And I believe there's research from Vanguard that shows if you have a lump sum of money, just getting it in the market is more often than not going to give you a better outcome than holding back.
- [30:19]
A
The conversation is lump sum investing versus dollar cost averaging. Right. That's the Vanguard research that shows over long periods of time. I think they measured 10 year rolling periods, but the measurement showed that over 60% of the time it was best to just throw the money in the market all at once because you had the money available and holding it back caused you to experience what we call cash drag, which is essentially the fact that the market will always be expected to earn more than cash. And so the more you have in cash for a longer period of time, the less you're going to experience the market like returns. So get the money in as soon as you have it, which is different than if you don't have it yet and you're just earning it from your paycheck and you're just throwing money in the market, every paycheck. That's dollar cost averaging. That's fine. You didn't actually have a lump sum to begin with because you didn't make the money yet. But in either case it's making sure that you're taking the action to put the money in the market. And I do have one more graph that I want to show for this category too. And Kayleigh, what do you, what do you see here?
- [31:24]
B
This chart looks a little simpler than the the ones we were looking at before. I am looking at a chart with two lines. Both are starting from the left and going to the right. Both are rising over time. There's a lighter blue line that rises more precipitously at the end and the darker blue line is a bit more modest, but it looks like it's measuring again another 30 year time period. And then it's showing a starting balance of zero going all the way up to $2.5 million.
- [31:58]
A
And basically what it's showing is the line that goes up faster is one where someone earns income, I think it's a hundred thousand dollars, and they save 20% of their income every single year for 30 years. And they earn 6% on average during those years in the market. And they make $2.3 million in the end in net worth. The other line that is not growing as quickly is the same income, $100,000, same income growth, 3% over time, same rate of return, 6%, but a drastically different savings rate of 10%. So the first one shows 20% savings rate every year into the market. So Your gross income, 20% of $100,000 goes into the market versus the other person is 10% of $100,000 into the market. And then their income grows and their percentage savings rate stays the same. And that lower savings rate shows $1.1 million. So that's double the person that saved 20% over time earning the same rate of return, doubled their net worth because they saved more money and they did it for 30 years than the person who saved less money and did it for 30 years as well. So your savings rate and the consistency of that savings rate over time is a much bigger factor than really rate of return because the, the person that saved 10% of their money, in order for them to have the same net worth, in the end they had to save, I think it's about 10%. So person that saved 10% of their income over 30 years, in order for them to get the same amount of net worth at about $2.3 million as a person that saved 20%, they had to earn 10% on annualized returns in the market versus a 6% annualized return. So much more risk, much less control over the outcome. Because who knows if you're going to get 10% or not. I'm pretty confident. 6%, 10%. Coin flip. Long term, depending on what we do with markets and how you invest.
- [34:09]
B
So you need to be not just a long term investor, but a long term saver too.
- [34:13]
A
Yeah, that's a big thing here. When people talk about long term investor and they're not saving money, their $1 dollar sits in the market forever. Great. Not doing much. When you add a savings rate, a consistent savings rate every single year to that long term investment rate of return, that is where the power is. And I can be pretty confident. If you have a good savings rate and you make money for 30 years, the rate of return is going to be important, but it's not going to be the thing that drives your success. The person that saves for that period of time at a high level is going to provide themselves with a much better long term probability of success. Meaning you have money to do what you want to do in your, in your life than the person who does it.
- [35:01]
B
As long term investors, here is what we know and what we can do about it. First of all, when we say long term, we're really talking about 20 year time spans. It's not five, it's absolutely not five. Right, that's, that is short term. Ten years is just starting I think, to break into the definition of, of long term because the longer your time horizon in the market, the more likely you are to earn the return you need that allows you to fund your goals and your lifestyle. Especially when you couple that with, as we just discussed, a strong savings habit that takes your reliance off the market. You are reliant more on yourself and your own savings power rather than, you know, contributing less and crossing your fingers that the market outperforms what we think it should. And we know it can be almost literally physically painful to sit through market crashes, corrections, downturns, dips over the period of time, the 20 years that it's going to require for you to get the return that you need. So, so really quick, Eric, do you have any advice on dealing with that, that reality of being a long term investor? Probably what makes it really difficult is sitting and staying the course and following that advice that we hear all the time. How do you actually do that without kind of losing your mind along the way?
- [36:16]
A
I think one big thing is don't obsessively check account balances. Really there's no need to do it if you've already set up the plan and it's operating without your fiddling. An advisor has it in, in their hands or you are you've purchased the portfolio through whatever you've chosen that is going to rebalance itself through your 401k or whatever it is. Don't check it. I've heard people say I don't check it often, I only check it monthly. That's a lot, right? Quarterly is a lot. Once a year maybe just to see how things are going is fine. But if you check it that much, you are going to emotionally experiencing the ups and the downs as in real time versus you check it once a year. You don't experience those ups and the downs. You just look at your balance once a year and then they look at the next year. Most times it's probably going to be up, sometimes it might be down. Instead of the checking it every day, there's a 25 chance that it's down, right? So I mean it's just a lot, it's a lot of bouncing around for you to do. You don't need to.
- [37:23]
B
It sounds like, I mean, it's a really good way to lose perspective. Like it's a good way to lose sight of the horizon that you have, which is well out in front of you. You start looking at trees instead of the forest, right?
- [37:36]
A
Which kind of leads to the second one, which is perspective shift. So through these difficult periods, remind yourself that to get the results you want, you have to invest through these market cycles, which is the ups and the downs, the market. And if you're not committed to doing so, it may not actually be worth you being in the market. If you're going to jump in and out, it's probably not worth it. You might probably end up losing more money than if you just stick in cash. Even though the cash, as we talked about, is a huge risk in of itself because it makes your savings rate need to skyrocket. To actually have the money down the road to be able to pay for things in retirement that have grown because inflation has happened over that period of
- [38:16]
B
time though, would be to get a plan in place. Don't delay that. Don't delay getting a strategy that you can follow and rely on. It's very hard to remain calm amidst chaos if you don't have any kind of grounding mechanism already in place. So that's priority number one. If you're kind of floating without the plan, get the plan.
- [38:39]
A
Once you have a plan in place, hopefully when things are calm and your objective and you can build a plan together. But even if you're not in your times of worry and you have an objective third party like an advisor that can be that steadfast angle to the planning, then get it in place so that you can be confident that your plan is working, albeit taking actions is making it work, then you're good. There's not much more you can do but focus on what you can control. And controlling the plan is ideal.
- [39:13]
B
And don't forget that hindsight makes everything seem really obvious. But nothing about trying to predict the future is obvious. And trying to make those predictions is kind of a losing game. Instead, you can stick to the strategies that will help you build wealth over time, regardless of the noise of the moment. And if you need help doing that, that's where we can come in. You can get a free one page plan from us if you go to beyond your hammock.com schedule that will show you how to submit a request for that to give you a place to get started with.
- [39:46]
A
And if you're not ready for the planning, then continue to educate yourself. And one great way to do so is to tune in for another episode of a topic that you'll be interested in.
- [39:56]
B
Sounds good. We'll see you then. Thanks for listening to another episode of Money for Life, hosted by Eric Roberge, CFP and founder of beyond your 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 host or the podcast. Please consult a qualified professional about your specific situation request before making any financial decisions based on this podcast or any other educational content designed for a general audience.