Investors: There Will Be Pain!

Investors: There Will Be Pain!

                                     by; Brendan Magee




When ever my sons are going in for their doctor check ups, invariably they ask "Am I getting a needle?" Honestly, I don't always answer as truthfully as I would prefer. I sometimes think it's better to spare them needless all day anxiety dreading the moment the needle comes out and gets stuck into their little arms. In retrospect, I don't know if I am doing the right thing or not by not being totally up front and properly preparing them for the pain that is awaiting them.


Survival is important to most people. Like the boys going to the doctors, we do things to ensure our health, survival and quality of life. We exercise and we invest our money, two things we need to engage in if we aspire to a long and healthy life. Most of us know that if we are going to exercise to the degree we need to, there will be physical and emotional pain.


When I go to my exercise class at 6:00 am, there is pain. I am tired and would like to lay in bed a little longer. When I get to the class and am doing the push ups, sit ups, burpees, squats, planks, etc, there is physical pain. Honestly, if not in the class with an instructor, I would not be working as hard as I need to. It's too easy on my own to convince myself that I have worked out as hard as I need to. Other than me, who really knows? Truth is, I know and there is pain from the guilt. When I go to bed the night before the class, I know there will be pain. I also know, after a year and a half, the pain is temporary and there are good long lasting results from enduring it.


I don't know that investors and, maybe more importantly, investment advisors do a good enough job in helping investors understand that with prudent investing there will come a significant amount of pain as well.


Properly diversified portfolios will experience down years. Sometimes they will experience consecutive years of negative returns and that is painful. It is especially painful when your friend boasts that they made 15%. It is painful to do be told the best course of action is to do absolutely nothing with your portfolio when your are under performing investments that are beating the pants of off your investments. In a portfolio designed to be held for 30 years or more you will not experience pain like this just once. Their will be numerous times when everyone is telling you that you are making a huge mistake to stay with your properly diversified portfolio. They will even have tons of statistics to prove how wrong you are.


In the midst of it, the pain can be unbearable. It can seem as if it will never go away. As it is with exercise, the pain is temporary and their are long lasting benefits from being able to endure it.
I can't think of any one who lived to regret exercising too much. Matter of fact, when they are going into the operating room for the bypass, the regrets are that they drank too much, smoked too much, didn't eat properly and didn't get off the couch and exercise.


The same can be said in regards to successful investing. Long-term, there is little if any regret to following the rules in a disciplined fashion. No one that I can think of ever lived to regret systematically rebalancing their portfolio by routinely selling a portion of what was up and buying a portion of investments that were down. In the midst of executing the strategy you may think your advisor nuts and the devil in disguise by recommending such a strategy, but in the long run you will live to thank him or her for helping you to stay disciplined.


Investment advisors do their clients a disservice by not letting them know and preparing them that there will be times when their investments will be the source of a lot of pain and frustration in their lives. Rather than focusing so much attention on funds with stellar track records and building up false hopes that those returns will continue in routine fashion, perhaps advisors would do better by the investor if they went over years like 2002 and 2008. Try as best they can to let them know that those years will come back again and that it would be foolhardy to try and predict and avoid those years.


Let the investor know what the course of action will be not just for their money, but the investor as well. Turn off the television. Take walks instead. Plan on attending coaching sessions and briefings. Let the investor know that it will be times like this and how they handle the panic that is going on around them that will make or break their financial futures.


Advisors also should prepare investors for the pain that can occur during booming markets. How will it feel when you see a couple of years when U.S. Large Company Stocks has done 20%, 30% and maybe even 40% when your properly diversified portfolio has been flat the past two to three years? Everyone is going to be enjoying the party that you apparently weren't invited too. That hurts! How do you not give in to the pain and buy a lot of U.S. Large Company Stocks or Gold or Tech Stocks while they're booming. How will that feel? What will the plan be on how to deal with all the pundits telling you the market has changed and the old prudent rules no longer apply?


How investors and investment advisors can succeed is by understanding that above any thing else, it is their behavior that will be the source of their success or failure, not the market or who is the president. Let them know that this is not the easiest thing to do. There is no such thing as a free lunch. You do not lose 20 pounds by sitting on the couch eating pizza. You need to be engaged in the process and there will be times when the easiest thing to do, what people are recommending for you to do is disengage and throw it all away. Your advisors main job is to keep you disciplined and not enable destructive behavior even if you threaten to take your business from them.


I wouldn't expect my fitness instructor to allow me to walk in to their class with a bucket of fried chicken. I might be a little upset in the moment if he should take the chicken out of my hands and throw it in the trash can so I don't eat it. (Let's be honest, in the moment I would be completely pissed off!) But, if he didn't react that way to my destructive behavior, "What good is he to me?" When I am, hopefully, dancing with my wife at my children's weddings and enjoying my grandchildren I won't be missing that chicken in the least. Investors deserve and should expect nothing less from their investment advisors


Brendan Magee is the founder and president of Inevitable Wealth Coaching. With questions go to www.coachgee.com or call 610-446-4322.