I took a spin class last week and the instructor kept reiterating two things as we climbed a hill, and it got me thinking about the two recommendations I referenced above. I know, I think about work WAY too much.
The two things she was selling to us tired riders were “discipline” and “add one more”.
I will explain.
The instructor was expressing (aka shouting over the music) how we must maintain discipline to make it up this hill. That it is long and strenuous and we must pace ourselves to reach the top.
Have you ever heard the term “disciplined investor”? I’m not making it up, it’s a real thing. Here’s one clip describing the disciplined investor in a Forbes article:
- Have a long term investment philosophy.
- Form a prudent asset allocation based on this philosophy.
- Select low cost funds to represent asset classes in the allocation.
- Maintain this portfolio through all market conditions.
- Don’t change the asset allocation due to recent market activity.
You have probably figured out by now how our discussion went.
This client has a well-diversified portfolio with an appropriate asset allocation for her time horizon and goals. She is also making regular contributions to her retirement savings. Outside of a possible need to rebalance, she is good to go and should maintain this disciplined approach and keep climbing that hill.
Most important to me was that she came away from our conversation feeling better about the current situation with an understanding that her plan was still in motion and she is on track.
Unless retirement is right around the corner for you, in which case you should have a plan in place well before that date, you will ride out this storm like you have all the others in your years of saving and investing. If you are a younger investor and haven’t yet experienced these market “thrills”, don’t fret, as time is really on your side.
History has shown time and again that the disciplined, long game will reward your portfolio, and investors have seen A LOT of reward over the past 10 years alone.
Now to my last point on the other recommendation I threw in there for this client. It relates to the final point below from the Forbes article and the spin instructors quip to “add one more”.
Don’t hold back on new investments while waiting for market clarity.
Non-disciplined investors tend to want to pull back or stop adding to their portfolio when the line is trending down. If you’ve ever had this reaction, it’s completely normal, but I want to help you understand why, in most situations, this is not the way to go.
Think about this. If you are OK with making a purchase when the cost of a product is at Think about this. If you are OK with making a purchase when the cost of a product is at a premium, but it’s really what you want and you know it’s worth the investment (literally), then why would you NOT be OK with purchasing the SAME PRODUCT when it’s at a steep discount?
It’s a bargain to be buying into the market when it’s down, so if you are not already maxing out your 401(k) or other retirement plan, try to “add one more” (increase your contributions).
If you know your company will do a true up match at the end of the year (mentioned here in last month’s newsletter), you may want to consider frontloading your contributions now while the market is down. Yes, it may still be down in December, but there is no crystal ball and we know it’s down now, so it can’t hurt. But ONLY if your company does a true up. You don’t want to max out too soon and leave free money sitting on the table.
Stick with it. You’ll get there!
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– Sheryl Sandberg, Facebook COO