Are you inspired or scared? A case for optimism…..

05 Mar 2015

“Far more money has been lost by investors preparing for corrections or trying to anticipate corrections than have been lost in the corrections themselves.”
-Peter Lynch, legendary investor and author

Investing can be such a rewarding and enjoyable experience; yet many of us are completely terrified with the idea and don’t quite understand how it really works. We have this unrealistic expectation that we can’t make mistakes. We always have to make money on every investment, or we are missing out on something. This is absurd. Poor investments and poor returns are part of the learning curve.

If it were that easy, everyone would make 15% per year on their investments. The real reason we struggle to achieve normal portfolio returns, in my opinion, has a lot to do with us and what we think successful investing really is or isn’t. Let me explain. Today there are over 10,000 stocks and investment companies to choose from. Let me say that again, 10,000. That means there are a lot of options out there. Imagine going to a restaurant and having 10,000 different food choices.

Looking at NYSE Index data, the mean duration of the holding period for a stock by US investors was around 7 years in 1940. This stayed mostly the same for about the next 35 years. However, by 2007, it was around 7 months….Why?  Fear? Greed? Both?

At Premier Investments of Iowa, Inc. we have developed a concept called the Premier Bucket System (PBS). Based on our system, a 7 month holding period would reflect money in the “liquid” bucket, or Bucket #1, and would reflect investments in cash, not growth. Yet, today people treat their “growth-long term” money (Bucket #3) as liquid money and just can’t seem to sit still. You don’t plant a tree and then stare at it and watch it grow do you? Well, this is what many investors do with their growth money…

Dalbar (a leading independent expert for the financial industry) has released data to validate this point for me. How can you achieve the long term returns when you are not investing long term? Why do you treat Bucket #3 money as if it is Bucket #1 money? It’s a great study in patience or should I say lack of patience.

I have believed for many years that those investors who have the following traits fair well when compared to others:

1) Have a plan. I mean a real written Financial Plan or Retirement Income Strategy that you can refer to in times of chaos and prosperity.  This way, you can try to remove the emotions of Greed and Fear in your planning. It’s hard to do, but it is not impossible if you (and your advisor) have the right mindset.

2) Have your money broken up into “responsibilities” or buckets. You need to buy a car; well Bucket #1 is in cash so you have the money available. You need an increased paycheck in retirement; well bucket #2 is providing interest/dividends for you. See where I am going with this?

3) Stay positive and tune out the media.

4) Look for opportunities when others are looking for shelter.

5) Be inspired each day not scared. Living in fear is unhealthy and unproductive, and so is living in the past. At the end of the day, what can you really do about all this anyway? Not much.

For much more information on this, please reach out to me to receive a free copy of my popular “Retirement Survival Guide-7 Tips for Financial Success”. Better yet, go to www.premierinvestmentsofiowa.com and download it for free.

Thanks and Good Luck!!

Jeffrey Johnston, ChFC
Investment Advisor Representative

Sources:

Securities offered through Registered Representatives of Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Advisory services offered through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Cambridge and Premier Investments of Iowa, Inc. are not affiliated. Past performance is not a guarantee of future results. Investment decisions should be based on an individual’s goals, time horizon, and tolerance for risk. The return and principal value of investments will fluctuate with changes in market conditions and when redeemed, may be worth more or less than their original cost. The Dow Jones Industrial Average and S&P 500 Index are an unmanaged measure of market conditions. It is not possible to invest directly into an index.

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Jeffrey Johnston

Jeffrey is originally from Solon, Iowa. He currently resides in Swisher, Iowa with his wife, Prudence, and his three children, Seth, Ian, and Roman. He graduated from the University of Northern Iowa in 1989, where he majored in Finance and Investments. He has 24 years of experience in the investment and estate planning business. He is currently the President of “Premier Investments of Iowa, Inc.” Jeffrey’s main focus is Estate and Investment Planning for Senior Citizens and Pre Retirees. Jeffrey became a Chartered Financial Consultant (ChFC) in 2001. He is the author of many articles on industry related topics and he is a frequent seminar presenter. He is a Board Member TRIAD Linn County Seniors Against Crime, and he is also a past Board Member of the Heritage Area Agency on Aging Task Force. He is a member of CEO Roundtable in Cedar Rapids, a Daybreak Rotary Member, and a member of the Cedar Rapids Estate Planning Council. In March of 2009, Jeffrey became the host of the Premier Investments of Iowa Financial Hour which airs every Tuesday Evening from 6PM -7PM, on WMT 600 AM Radio. In his free time he enjoys golf, fishing, scuba diving, traveling, and coaching son’s basketball teams.