Most people can define what money is to them. And when we ask them, they generally define money as freedom, the root of all evil, a way to get things, etc. We like to think of money differently at Waypoint. We like to define money as life energy. This idea began with Vicki Robin and Joe Diminguez in their book Your Money or Your Life. In this book, the authors explain a few basic principles that can help you think about your life and retirement. The first point is that you can get to a point where you have "enough." This is the point where having the nicer things isn't worth giving up the life energy necessary to have those things. Many people unfortunately identify happiness and self worth with the amount of things they have in their garage or the amount of money they have in the bank. Finding the optimal (not maximum) amount of wealth is extremely important to long term happiness because it allows you to have the time to do the other things in life. The second principle in the book is that "X" really does mark the spot when it comes to financial independence and retirement. The authors really believe that financial independence is attainable if people do the necessary things to make it possible. It can happen because if you work at improving yourself and making yourself more valuable, then your monthly income should trend up over time. And, at the same time, if you constantly monitor your expenditures, your expenses should trend down over time. Everything in the gap between your monthly income and you monthly expenses should be available to invest. Once the interest from your investments is more than your monthly expenses, you are working because you want to and not because you have to. We hope these two principles can help you get more focused on your retirement and future.
Matt Coakley
Thursday, October 27, 2011
Wednesday, October 5, 2011
The Flight Response to Market Fluctuations
Did you know that the average compound return for individual investors is substantially lower than the average compound return for the total market? We feel the one of the main reasons for this is that investors tend to have the wrong emotions about the market at the wrong times. For example, when the market is performing really well, investors tend to be extremely optimistic and are willing to bet everything they have. On the other hand, when markets are performing poorly, investors tend to be extremely pessimistic and want to pull everything out of the market. The actions of investors, as a result of the above described emotions, are what lead to investors significantly underperforming the market. The truth is that when the market is really performing well investors should be pessimistic and when the market is performing poorly investors should be optimistic.
Investors often try to pull everything out of the market when things are going poorly and then put everything back in when the market starts performing well again (or vice versa). This is what leads to investors underperforming just simply leaving all their investments in the market. The problem with trying to time the market is that an investor has to be right two times, when to get in and when to get out (or vice versa).
It's no secret that the market has been battered in the last few years. This has led to many investors pulling all of their money out of the market. There typically is a snowball effect because once investors start panicking, then other investors react the same way. We call this the "Flight Response" because money starts pouring out of the market so fast that it often times compounds the losses in the markets.
Remember, that right now is the time to be optimistic in the market. Stocks are on sale right now and you can buy more of them with less dollars than when the market is high. However, we do not know when the market will turn around but, we are confident that it will at some point. And when that happens, if you have been buying the stocks on sale, then you will have positioned yourself to experience much more of the rebound that those that chose to sit on the sidelines.
Ben Coakley
Investors often try to pull everything out of the market when things are going poorly and then put everything back in when the market starts performing well again (or vice versa). This is what leads to investors underperforming just simply leaving all their investments in the market. The problem with trying to time the market is that an investor has to be right two times, when to get in and when to get out (or vice versa).
It's no secret that the market has been battered in the last few years. This has led to many investors pulling all of their money out of the market. There typically is a snowball effect because once investors start panicking, then other investors react the same way. We call this the "Flight Response" because money starts pouring out of the market so fast that it often times compounds the losses in the markets.
Remember, that right now is the time to be optimistic in the market. Stocks are on sale right now and you can buy more of them with less dollars than when the market is high. However, we do not know when the market will turn around but, we are confident that it will at some point. And when that happens, if you have been buying the stocks on sale, then you will have positioned yourself to experience much more of the rebound that those that chose to sit on the sidelines.
Ben Coakley
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