Traffic Jams and Investing
Have you ever been in a traffic jam? If you have driven on the 5, 10, 15, 405, 101, 110, 40, 70, 35, 91, or 95, you will get stuck in a traffic jam. I put the odds at 100%. Did you ever contemplate walking, thinking it would be faster? Maybe if you only had to walk a few blocks but certainly not if you were driving a long distance.
The drive from Austin to Dallas on I-35 takes about 3 hours and 30 minutes, and there are more than a few opportunities to get stuck in traffic. However, I never contemplated walking to Dallas from Austin because it would take about two and a half days. I'm not too fond of traffic jams, but they're part of driving.
In the early 1970s, my mom, sister, and I visited my cousins in Laguna Beach. After dinner, we left for our home near Los Angeles, and we got trapped in a massive traffic jam. I was young, and I didn't handle it well. I felt like the world was ending, and I would never see my friends again. My fears were unfounded as the traffic started flowing, and we made it home without incident. As a native Californian, it would not be my last traffic jam.
What does a traffic jam have to do with investing? When stocks are falling, investors want to jump ship, sell their investments, and wait for the market to recover. Nervous investors desire to time the market, hoping to buy stocks before they soar and sell before a crash. Good luck.
According to AMG, If you invested $1 million in the S&P 500 in 1999, it was worth $5.9 million in 2021 – an annual return of 8.4%. However, if you missed the ten best days, your value dropped to $2.7 million. It gets worse. If you miss the twenty-five best days, your account balance was only worth $1.29 million – an annual return of 1.1%. As a comparison, US T-Bills returned 1.7%. It does not pay to time the market.
Today, you have access to several tools to help you drive safely. With GPS, it's easy to navigate the nation's highways, avoid traffic jams, and rarely get lost. Like a GPS for your car, a financial plan can guide you through challenging market conditions, allowing you to focus on your long-term investment goals.
They say the universe is expanding. That should help with the traffic. ~ Steven Wright
February 8, 2022
Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management, located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM's custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.
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