Money

A Life of Excellence, part 8

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Living a life of excellence means having enough, especially for the glorious day when retirement comes. Many people today are scared right now about their investments, including my parents, who are retired. They look at the dollar amount and see an immediate crisis. Over the years, I’ve tried to help them with their financial planning, but of course they work with an advisor to manage things because they have the expertise in that area. Lately in the world of finances, all we hear is unwelcome news. It is true, economic downturns have happened regularly throughout history. The value of shares will likely soar to new heights again, but it hardly ever happens quickly. When trust is lost, it takes a while to return.

I remember joining my parents for an appointment and listened to the financial advisor throw facts and figures at them. It didn’t take a genius to see they were drowning in a sea of information. It was clearly over my head too, but I took some concepts away from it. After leaving the meeting, we sat in the car and I looked at my flustered parents. They still had income at the time that they were living on. The scary thing was what they were saving appeared to be dwindling away to nothing. What will we live on, became the concern. While the financial advisor was trying to ease their concerns, he was doing so purely on historical facts, mathematics, economics, and so on. Much of what he said made sense to me. However, I could clearly see none of it meant anything to my parents because they were thinking emotionally. I will share below some of the things I shared with them and hope that it might help you.

Emotional reactions like fear, anger, and depression are common during these downturns. Everyone sees the numbers drop and thinks what they have worked so hard for all their life has been severely diminished. Not everyone has time on their side. If they are forced to sell shares by withdrawing from their retirements, they are selling what they spent years accumulating at a discounted price. It’s kind of like a make-believe bully that sees you have ten dollars in lunch money, then decides you now have six. The whole point of investing is leaving your money in as long as possible to let it grow. Even though your statements say the value is whatever amount today, you technically have the exact number of shares you had before. That is likely conservative to say so because you may, in fact, have more due to the dividends possibly earned.

When we look at the dollar amount, our brains see it as unfair. I think in the U.S. it is because the value of our paper currency seems stable to us. Every day we wake up, a dollar bill is a dollar bill. If you have a hundred-dollar bill, next week, no one will come to you and say now it’s only fifty dollars now. That is what happens with stocks. The values always fluctuate based on lots of factors. When stocks are combined into mutual funds, such as for 401k, it could be a hundred stocks jumbled together. It may not be that one company in the mutual fund is doing completely horrible, but if enough companies are not doing well, then the whole thing is worth less.

Imagine the emotional reaction if you had a thousand dollars in the bank one day and woke up to five hundred the next, you would freak out! This is, and seemingly will always be, the disadvantage of investing. It can be a difficult battle to conquer our emotions. If time permits and you can hold out though, the risk is worth the reward. Our money can increase over time if left alone long enough to double, triple, and even become far greater than the amount we originally invested. Let’s say for a simple example, you put in a hundred dollars. Forty years later, you get back four hundred dollars. How awesome is that? That is one reason rich get richer.

The system is set up to make your money work for you. The tough part is getting money, investing it, and then leaving it alone for long enough. What’s even better is continually adding to it for forty years and ending up with a nice sum. Sadly, many people never save anything and end up with nothing. The younger you are, the more you can change your lifestyle later. Will your future self be thankful you saved over the long term, or will they suffer because of your short-term decisions today?

If you are struggling financially, and thinking of withdrawing from your 401k, here is one more thing to think about. Many companies are fully aware of the struggles facing their customers. Talk to each of them and see if there is any way they can work with you on deferred payments, reduced payments, etc. You never know the answer until you ask.

Some key takeaways:

  1. Check with your financial advisor if you are uncertain about what risk category your investments are in, to make sure they are in the right ones. If they are, then they will likely advise you to leave them alone.
  2. Financial advisors often say never sell your mutual funds because you are afraid. During economic downturns, stocks are on a super sale. If you are selling, everyone is benefiting from your loss. Now is actually the time to buy more, if able.
  3. If savings are depleted and you have to sell, try to sell as little as possible, from the most conservative of your investments. Unless something catastrophic happens, things are highly likely to return to normal.
  4. Although the value of your account has changed, the quantity of shares you own has not. For me, I don’t look at my statements during troubling times like these because it only adds to my fear and panic. One day, when I look again in the future when things seem bright again, it will be magically higher.

My hopes and prayers are with you during this difficult time.

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