When NASA launches a spacecraft to land on the moon (yes, I know that’s been awhile) what percent of the time does it spend on its intended path?
It’s only 3% of the time. The Apollo missions took about 3 days to reach the moon. This means that out of the 3 days to reach the moon, they were on their intended path for only about 2 hours! That’s it! What the heck does that have to do with investing? I think it’s a worthwhile analogy.
As humans, we set goals, whether it’s going to the moon, buying a house, saving for college or being independently wealthy. Goals are so important because it guides our actions and it gets us moving in the right direction. Apollo was only on its exact intended path 3% of the time, but its trajectory, it’s path, was always moving closer to the moon. (if you’re a bad golfer like me, you know the feeling)
And so is the case with financial goals. When we run a projection for a financial plan that earns 6% per year, that does not mean we will earn 0.0238% per day. Investing doesn’t work that way. Sure, there will be some days that we earn exactly 0.0238% in one day, but I have a feeling that occurs even less often than Apollo was on track towards the moon. It’s more likely that we have days like today: the Fed raises rates, your portfolio jumps 1.28% today. Tomorrow it goes down a little, and on and on.
But daily returns don’t matter. Frankly, monthly, quarterly, and semi-annual returns aren’t the most important thing either. Those are just results. That’s the scoreboard. What matters is that we’re taking the right actions towards our goals, and making course corrections along the way. That’s even how our investment models work: making adjustments as we adapt to changes in the global markets. We will experience down days, months and quarters along the way. As investors, we shouldn’t be surprised by that, we should expect that. That’s how investing works. Volatility is just part of the process. If your account didn’t fluctuate, you’re either one of Bernie Madoff’s clients or sitting in cash.
That’s why focusing on process is so important (vs results). Goals change as we have new experiences. The goals we had when we were 5 changed by the time we were 15, and changed when we were 25 as we had new experiences along the way. But at least goals put us on the right trajectory towards the things that are most important to us in life. A cool exercise: think about a goal and then ask yourself “if I accomplish that goal, what will that mean to me.” For example, goal: have a million dollars. What will that mean? I’m rich. What will that mean? I don’t have to work anymore. Why is that important? I can spend more time with my family, exercise, and hiking. Ahhhhhh….now we’re on to something.
General advice: Think big. As someone once said “aim for the moon. Even if you miss, you’ll still land among the stars” …even if we’re off track 97% of the time.
Eric Ludwig is a certified financial planner in Madison, WI primarily for a select group of successful professionals and business owners, who among other things aspire to a work-optional lifestyle. Stockbridge has developed and refined a process to put all the pieces of that puzzle together and we call it the Stockbridge GPS process. GPS stands for Goals, Planning, Strategy.