Volatility is So Not Your Friend!

Your financial advisor says, “Don’t look at your stock market portfolio every day.  It’s not good for your health.  Stocks always go up and down.  Just look at it once a year.” 

Really?  Just once a year?  Why would he say that?  Because even if you looked at it more frequently, you might not know what changes to make anyway.

Also, he knows that too many negative changes in your portfolio may make you nervous and even worse, want to change advisors! 

You’ll hear, “Volatility gives you the opportunity to buy low and sell high! The stock market will recover; it always does.”  Sound familiar?

Volatility is the HUGE elephant in the room.  It is defined as large swings in market price or value.  It is a major concern because it disturbs continuous cash growth. Volatility can take the values of our investments to insanely high levels and then crazy low levels, potentially all within a week.  Then we’d need to wait to recover.

But how long will that recovery take; do you have the time to wait?  And recover to what level? The insanely high one you tasted for a day but didn’t sell because “It will go higher?”  We add so much stress to our lives!

During the “accumulation phase” of your life, when you are building up your retirement account, volatility is severely damaging to continuous growth.  Compounding is destroyed. Regardless, we get used to the ups and downs, and we think we have time.  But drops in value require “recovery” over time. Some advisors would have us believe those drops in value are unavoidable, and not a big issue; even reasonable. Yikes!

When we retire, we enter the “distribution phase”. Accumulation was tough, as we had to stomach losses and struggle to try to achieve desired results, and that was stressful enough. This distribution phase is even tougher; it is the part of our lives when we do not have the opportunity to continue working, to put more money aside.

Imagine you’re 82 and the value of your investments just dropped by 34%, as occurred in 2008.

How would you feel about that?  Would it affect your ability to pay your bills?  Would it cause stress?  Would it shorten your life?

“But your portfolio is averaging 5%!” your advisor claims.  Oh no!  That’s just another one of those poorly understood words, which makes you feel that your money is smoothly growing.  The problem is that it doesn’t smooth anything out; it just disguises the problem even further. 

Volatility destroys compounding and growth. 

Learn more: https://www.himelfinancial.com/blog/arithmetic-averages-deceiving-and-matters-you