How prepared are you?
Many friends have expressed a lot of negative emotions about their investments recently. Their thoughts are backward looking and highly self-critical. Some examples include:
“I should have exercised my options when the share price was a lot higher!”
“My concentrated RSU position is killing me!”
“I should have diversified my portfolio years ago!”
Don’t Saw the Sawdust
Please don’t beat yourself up. Lots of people are hurt emotionally and financially by this downturn. But what you’ve done in the past is long gone. As Dale Carnegie said, “Of course, you can’t saw the sawdust. It’s already sawed.” Put simply, when you start worrying about things that are over and done with, you are trying to saw sawdust.
Instead, think about what you can do today to increase your chances and develop a successful future. We work in a world of imperfect information and it’s alright to say “I don’t know” or “I’m not sure.” You have to be comfortable with not knowing.
There’s a lot of volatility, uncertainty, and unpredictability in our lives. There always has been, and this will never change. The world is unpredictable and large events such as panics, supply chain challenges, and investment bubbles usually have a disproportionate impact on outcomes. Furthermore, there’s no exact science on how to predict the impacts of these very unlikely events.
What to Do
To handle an uncertain world we can predict or prepare. Prediction is tempting and it’s been done throughout human history. Unfortunately, expert predictions about the economy and stock market are seldom correct. Many experts predicted that the stock market would decline in 2019, 2020, and 2021. The market returns for those years were 31%, 18%, and 29%, respectively. Alternatively, some visionaries also predicted that the returns would be robust in 2022.
How to Prepare
Therefore, it’s better to prepare. In terms of financial planning, it’s best to be ready for the ups and downs. Some planning items include having a diversified portfolio, cash on hand for emergencies, and a seasoned financial planner to help you through good markets as well as challenging ones in order to have a tailored plan specific to your situation.
If you’ve relied on prediction instead of preparation in 2022, and have failed as a result, that’s ok. Instead, think of it as an opportunity to develop some fortitude and learn from this failure. You can always start again.
For instance, when working with an experienced financial planner, you can help turn prediction lemons into lemonade through actions like Roth IRA conversions and tax loss harvesting.
Preparation Advice from the Best
As tennis champion Rafal Nadal stated:
“One lesson I’ve learned is that if the job I do were easy, I wouldn’t derive so much satisfaction from it. The thrill of winning is in direct proportion to the effort I put in before. I also know, from long experience, that if you make an effort in training when you don’t especially feel like making it, the payoff is that you will win games when you are not feeling your best. That is how you win championships, that is what separates the great player from the merely good player. The difference lies in how well you’ve prepared.”
If you’d like to chat about stock options, financial planning, or how to live like you only serve aces, let me know!