I think everyone would agree that the market has been very good to investors over the past few years. Almost to a point of us forgetting that there is actually volatility from time to time. As the father of three kids (7th, 5th and 3rd grade) I can't help but draw a parallel to parenting and investing.
As a parent, every single morning we wake up and hope for the best. We hope nothing bad happens, sometimes we hover a little too much, sometimes we try to save our kids from failing. When we see trouble on the horizon, we want to bubble wrap them and snuggle up next to them to make sure they're safe. But we still want them to experience life and maximize the potential we see in them.
We all walk that fine line of knowing when to interject and when to allow them to grow up. How do we allow them to grow, learn, find friends, experience success and become contributing members of society? How can we expect them to get back up, if we don't allow them to get knocked down once in a while?
We tend to walk the same line of with our money. We check the balances often when the market volatility picks up (hover), we move it to something safe and secure (snuggle) and we hold on to it until we feel it's safer out there in the real world. We want it to grow but without unnecessary risk.
We all know there will be days when our hope of a good day goes down the drain in an instant. Days when your child screams, 'You're so mean' or 'I hate you'. Those words sting....real bad. Days when we see the market drop 400 points at the opening bell...those sting too. We all know in the back of our mind this too shall pass....but what if it doesn't? What if he/she hates me FOREVER? What if this is the beginning of the end of our relationship? What if this is the first 400 points in a string downturns with the Dow going to zero? Irrational thoughts take over.
Unfortunately, as parents and as investors, we can't always eliminate all of the risk and expect our kids and portfolios to grow. We can inform and educate. We can hope to pick quality investments and hope our kids pick quality friends. We also have to consider that sometimes by interjecting at the wrong time or too much, we can stifle the growth of both our kids and our investments.
So what do we do? Before making any emotional decisions, take a step back and assess the situation, educate yourself on the risk involved and have a plan in place so you know what to do when something happens. So ask yourself; is this situation going to cause serious injury to me or my child? Is this financial event going to stop me from achieving my financial goals? Is there anything I can do to mitigate some risk but still allow for a learning process and growth? Is this the time to grab everything, head inside, lock the doors and grab the gun?
Having a plan helps us stay calm in times of emergency or panic. Having a plan helps take our emotions out of the decision when we are in the middle of an event or emergency. Having a plan helps us make rational decisions.
We are here to help you with your financial plan and to help you make rational financial decisions in an irrational financial world. We are here to educate and inform. As for the parenting advice, I'll take any tips and pointers you want to send my way.
Enjoy the day!