It's really hard.
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One of my favorite stories/life experiences is when I had to go to Australia for an army exercise.
If you’re thinking Gold Coast with sunny beaches and attractive, tanned women in bikinis (okay now I’m thinking about it), you’d be wrong.
It was a desert.
It was literally a desert.
Very little access to water or shelter, scorching hot all around in the day and terrifying cold at night.
Poor morale makes for poor soldiers, and so the battalion opted to allow each person to purchase $10 worth of goods. The majority of goods were something to help a soldier's phone, or cigarettes.
But I, the 21 one year old young, fit and overconfident me…
…Chose chocolate.
I spent most of my night happily scarfing down chocolate and giving them out to some of my luckier friends, before carefully counting and distributing the chocolate evenly... 10 a day, every day till this was over.
Imagine my shock and horror when I came back from the tank shed in the middle of the next afternoon - to find almost all my chocolate in a semi-liquid mess, becoming worse and worse with each passing second. My beloved chocolate, one of the few comforts I had in this harsh terrain, was dying before my eyes.
...Naturally, I quickly combed through the pile and scarfed down any chocolate that had even a remotely solid shape.
Once I was unlucky enough to have the entire chocolate run down my uniform like it was water, I stopped.
It was over.
To be honest, at the time I felt like crying. I know it seems so silly and trivial, but it was a desert. I was in good company, but personally I was often tired, hungry, uncomfortable and weak.
Also, I really love chocolate. In my mind, the chocolate was meant to last the entire trip.
Come back from a harsh day in the outfield, scarf down some delicious chocolate and wash it off with a lot of in camp water. Two weeks of that would have made my time much more bearable. Everyone else had their phones and their cigarettes, but I felt like I was the only one in camp who had lost their little life-line.
Having already tried to minimize my losses the only way I knew how (with a belly full of chocolate and stains on my uniform to show for it), I was left with no choice but to dispose of what was useless brown liquid at that juncture.
Because my lunch break was short, I opted to head back to the shed and do the deed at night. It left me bitter for the rest of the day.
And then it happened.
I came back at night, still grumpy, and reached for the bag of chocolate to throw it - and ended up holding nothing but solid goodness. It was a god-given miracle.
... Well specifically because the desert was so ****ing cold at night, all the chocolate that had melted refroze while I was away at work.
Not only that, but when I took out one, unwrapped it and ate it, it was easily the best chocolate I ever had. The refrozen effect had left a wider, easier on the teeth effect on the chocolate and none of it was sticky nor melting in my hand.
Each and every bite was amazing.
There were many lessons I learnt from a tale of love and loss (on such a small scale such as this), and I really hope that people can relate to it and see how it applies to your finances, especially as you go into the new year.
4 Pointers Investing into the New Year
1) Timing the market doesn't matter - as long as you're prepared for the consequences.
I experienced a roller coaster of emotions due to the consequences of my actions in relation to when and why I purchased the chocolate that almost led to an '80% loss'.
The unit was chocolate, but you get the idea.
Had I known the potential downside and upside, I would have held it intentionally instead of accidentally. The same tends to apply to your stocks and funds - once you understand the way the fund functions and what kind of lows you can expect, it doesn't matter when you buy into it.
Like a stock, every extra day you have chocolate on hand tends to be a good day, so start sooner rather than later.
2) Information is your weapon in successful investing...or successful anything, really. If I'd bought the chocolate in the day, I would have known that it would melt. Or better, if my brain hadn't been so fried I might not have bought chocolate BECAUSE it would melt. Or even further, if I had considered it would melt but knew that it would refreeze at night, I wouldn't have had to put myself through so much self-induced anxiety for something that was perfectly natural and expected.
It's the same for investing, really. Especially because many of you enjoy investing in efficient markets like the US and Singapore via ETFs and Robos, there's a ton of information available for you.
Then regardless of where you get the information from, you also learn how to deal with the ups and downs.
Is this down historically natural, or is it a result of an unexpected crash?
Should I cut my losses?
Or should I hold out for a rebound?
Or should I buy even more...?
3) Don't get emotional, but recognize that investing is during changing circumstances.
Everyone kind of knows by this point that you're supposed to not invest emotionally, which is about as easy as laying off junk food and walking 10,000 steps a day.
Completely doable, but not easily doable.
Your investing journey is fueled by emotion especially due to circumstance. Had the chocolate not been the only good thing in a god-forsaken desert, I would obviously have been a whole lot less emotional about it. Similarly, there's going to be times where you're emotional enough to compromise your investment objectives.
The need to buy an item that feels urgent, or a holiday that costs a lot more than you thought it would, a wedding or renovations that blew up your budget, etc.
And being put on the spot like that can be emotionally hard because you feel very much like you're losing the thing you really want, even though when you first started your investing journey you were in a good place and didn't need any of these things at the time.
Like self-insurance after 65, for those of you who are Buying Term and Investing the Rest.
Or your children's education. Or your retirement plan. I'm not saying your needs aren't real, or that you shouldn't necessarily access what you have to solve a short term, unexpected problem. But its to your future detriment, that's for sure.
Recognize the circumstance for what it is before making a decision. It's okay to be emotional, just see it coming.
4) A degree of illiquid investments is a good thing. Extremely good.
When your stock goes down the drain in a horrific manner, you can be tempted to do what I did - cut your losses and toss the rest out as a lost cause. At least, that was the plan.
In a world with decreasing desire to commit to anything from investments to marriage, the modern definition of the Exchange Traded Fund (ETF) is a phenomena in existence.
For efficient investments (only) - it is undoubtedly the single most cost effective, yield-enhancing, consumer-beneficial investment vehicle in the market...
...Only if you hold onto it. And let's be frank - most people don't. You may disagree, but the longitudinal evidence says otherwise.
Your trading fees are not structured that way coincidentally. Technology disrupted the banking industry, but banks are no fools. They took a bet that people would behave the same way they do with stocks (which is why 95% of all traders lose money) and it paid off...It's still paying off.
The reason I didn't end up losing all my chocolate was because it was inconvenient enough for me not to. Similarly, something that isn't extraordinarily easy to sell or trade isn't likely to be sold or traded.
...Obviously you don't want the kind of iilliquidity where it takes months to sell off something - but much like an argument that you wish you could take back or cool down first, the couple of days can do you some good to properly get your head back on straight.
The chocolate was only available at night, when it had frozen over. Getting used to it took some time, but my expectations and satisfaction adjusted quickly. I had it when it was purposeful, most satisfying and when I needed it most. Not anytime before or after.
Most market cycles are like that. There are some times where it makes sense to eat chocolate and other times where if you insist on having it, its going to be a largely unsatisfying hot mess.
So if you have a medium-to-long term goal for the reason you put the money aside - which is really what financial planning is all about - one way you can ensure that you'll stick it out is to limit your own accessibility to it.
It only takes a moment of overconfidence for years of unmet investment goals and months of having to save even more or work even harder.
What Comes After?
A lot of people worry about market volatility, which baffles me constantly.
This is something that is overwhelmingly beyond your control. We cannot control how corporations make decisions and we can barely control the result of anticipating how they make said decisions.
What I worry about a lot more for my clients... Is your own internal struggle. Your own journey through the desert.
With ever changing circumstances and the unexpected things that happen to you directly, your many reactions to investing over the years will affect how much you enjoy your chocolate.
Yes, I know that chocolate does not grow, but I hoped that the points that were applicable and relevant would be easier to relate to. Especially since it was a personal story. O_O When should you buy? When should you hold? When should you sell?
What should you buy and why should you buy it?
How do you know if it will grow and if it grows, when should I stop growing it?
When should you sell or rebalance? And why, how will it help you or matter?
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Money Maverick
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