It Just Doesn’t Matter

Near the end of the classic movie “Meatballs”, Bill Murray inspires his group by telling them not to worry about the score, and ends with a chant of “It just doesn’t matter.” Yes, I know I skipped over a few jokes in between. This scene came to mind as I was putting recent market moves in context for a client. Too often we humans allow ourselves to get caught up in an event without asking how important it really is to us. Watching our investment values go down can be stressful. The closer we get to retirement, the more stressful it can be.
 
As the apprehension builds, most of us would be well served to channel Bill Murray.
 
One of the greatest misunderstandings regarding investing is that of returns. Returns are reported based on some arbitrary time period. The nightly news reports the daily move from the market close the previous day to the market close that day. Ask yourself, how often do I buy at 4 pm and sell exactly 24 hours later? The answer is very rarely. You can take that question even further out- how often do you buy on 31 December and sell exactly 365 days later? Investment product sponsors are very good a picking time frames that support their offerings. Long-only products are going to do their best to ignore the 2007-2009 market, while products that claim to “protect” you will try to include that period.
 
Arbitrary time period returns just don’t matter. There are times when markets going down have a real impact on us. For example, if you need to sell because you’re ready to buy a house, experiencing a 15% drop in your portfolio at that time does matter (ignoring the question of why you would have the money for house purchase invested in something that could go down 15%). It is for this reason we routinely discuss with clients their upcoming cash needs. Generally speaking, as you approach a due date for an expense, you want to reduce the risk of that money getting wiped out.
 
A great majority of the time what does matter are your goals. Focusing on these goals can help you stay calmer during market storms. Speaking of storms, cliché storm approaching. This is why you plan, to understand where you are and where you want to reach. Understanding your goals allows you to see the forest through the trees. Panic selling when you still have 30 years of accumulation ahead is a good way to win the battle but lose the war. Having this anchor in the storm will help keep your emotions grounded. This is a real-world case of failure to plan is planning to fail. (Cliché storm has now passed.)
 
I am not arguing you should never look at your investments. Instead of looking at the percent return however, you need to understand if the investment is doing what is supposed to do and if there is a better option available. A stock index fund will be down when the stock market is down – that doesn’t automatically mean you should sell. If it isn’t up when the stock market is up, then it is time to look at it closer. While it is fun to talk about a great investment return or avoid a horrible loss, when it comes to a 30 year plan, a 3 month return, say it with me, “just doesn’t matter.”