Wisdom from Behind the Plate
I was in NYC on a business trip the day Yogi Berra died, September 22nd. Traffic in and around the city was slow so I spent a lot of time in the car between meetings and listened to radio coverage celebrating the life of Yogi, a true American icon.
I am a big Yankee fan but even the most witless Yankee haters have an appreciation for Yogi. He was not only a WWII war hero, but also an All Star catcher, a three time American League MVP, and a ten time World Series Champion. Even with all his tremendous accomplishments he will likely be most remembered for his “Yogisms”. Many of these jumbled expressions or malaprops have become part of the American lexicon. As they ran though some of them on the radio I was stuck by the inner wisdom some held. And how many of them could be applied to the markets.
“The future ain’t what it used to be”
The markets are always worried about something. Right now higher interest rates, China slowing down and Syrian refugees have investors concerned. Six months ago it was something else and six month before that it was another set of issues. If you’re ever not worried that should concern you.
The Time magazine cover story on March 8, 2009 was “World Economy Goes up in Smoke”. They were piling onto the tremendous fear already in the marketplace created by the Great Recession. The markets bottomed one day later, March 9, and until about a month ago it has been straight up.
Don’t let headlines and the media knock you off track. You need to set your asset allocation and stick with it. You only adjust when something in your life puts you in a position to take more or less risk. Not when you have a hunch or in anticipation of the next collapse. Staying fully invested has historically proven to be the best strategy.
“If you don’t know where you are going, you might wind up someplace else”
I think blind faith in some of the financial planning tools can be dangerous. They are based on so many variables – rate return, inflation rate, tax rates, salary raises, longevity, etc, etc. We know some if not all of them will be wrong. With that said it still helps your financial future to have a game plan.
I like to keep it simple. Get people to save between 10-20% of gross income. Have them create the appropriate safety nets - emergency savings, insurance, and estate plan. Set an asset allocation* that reflects their risk profile and rebalance back to that allocation in good markets and bad.
“It ain’t the heat, it’s the humility”
Investing can be a humbling game. The ability to out think and out maneuver the markets can be tough. A lot of money can be wasted trying to find the next great investment. In most cases I prefer low cost indexing strategy for investments. You are controlling what you can -cost. Plus you are still in position to get average market returns.
“No one goes there anymore. It’s too crowded”
It is easy to be tricked into believing that both bull and bear markets will last forever. Once everyone is convinced that you need to buy it may too late. The opposite is also true. When it is scary to buy the timing is probably right. Another often quoted individual, Warren Buffet said ”We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful."
Rebalancing** your portfolio back to the original asset allocation can help prevent you from getting crushed by the crowd.
“It gets late early out there”
With the time value of money you need to start saving today. The earlier the better. Borrowing from Flap, Flap, Little Butterfly, a past blog entry…
A 22 year-old that saves $2400 a year at 7% compound interest ends up with $638,690 at age 65. If that 22 year can’t afford to save until they are 30 years old the same $2400 a year at 7% only ends up being $384,809. ***
The sooner you can start saving the more successful you will be.
“A nickel ain’t worth a dime anymore”
No matter how you do it, all retirement planning has the same goal: give you the cash flow necessary in retirement to do the things that are important to you. If we don’t grow our savings, inflation can eat away at our purchasing power. Even for new retirees we often plan out for 30 years.
Using a calculator in the research tab on the Front Porch Financial website www.frontporchfinancial.com Items that cost $10,000 in 1984 would cost $22,785 in 2014.
This is why we invest. The hope is to grow our savings faster than inflation.
One of the most famous “Yogisms”, is “It ain’t over until it’s over”. With market gems like these it is easy to see Yogi’s wisdom going on long into the future. RIP #8.
For more information about managing your money, please visit www.frontporchfinancial.com or call (262) 236-9022.
There is no assurance that the techniques and strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal.
*Asset allocation does not ensure a profit or protect against a loss.
** Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss.
*** This is a hypothetical example and is not representative of any specific situation. Your results will vary. The hypothetical rates of return used do not reflect the deduction of fees and charges inherent to investing.