I recently wrote about our decision to move across town seeking shorter commutes and more time together as a family.
The process was an emotional and financial roller coaster and a good reminder of many aspects of investing.
Risk/Reward
In investing and in life, you have to take risks to earn greater rewards.
Selling a home we loved was a huge risk. The home we left in Apex was my dream home in nearly every aspect.
The location wasn’t working for us anymore, but we knew it would be nearly impossible for another home to live up to those standards. Despite our reservations, we decided the potential reward was worth the risk and we took a leap of faith.
Viewing potential houses was an evaluation of the compromises we were or were not willing to make. We also found our new home prior to selling our old one, so there was a short period where our financial obligations were much more than we were comfortable with. In the end we were glad that we took the risk, but it wasn’t without many sleepless nights and tears shed.
Hopefully your investment portfolio hasn’t made you want to cry, but holding a diversified portfolio is not always going to feel comfortable or pleasant. Earning a good rate of return over time means accepting periods of volatility and losses. Achieving our goals in the home buying and selling process meant accepting short term disruptions to our schedules and emotional turmoil to reach our desired outcome.
Recognize Emotions
Money and emotions are closely intertwined. It is important to recognize our emotions, feel them, and decide if they warrant action.
The current real estate market is full of stories of homes selling in a day, above asking price, or inciting bidding wars. I was under the impression everyone would love our house as much as I did and it would sell quickly.
But after one initial offer fell through, it took a few months to sell. During that time we were afraid that it might not sell or that we would have to drastically drop the price. We felt like we needed to do something:
- drive more traffic
- update the master bath
- landscape/etc
However, the best course of action was to stay patient and stick with our strategy. It took time for the right buyer to come along, but eventually they did.
Many times investors let fear take over and become frozen in indecision or take a quick action that harms their long term results. Emotions are the driving force behind the buy high/sell low roller coaster that many investors ride.
It’s important to remember that if you are using a prudent long term investment strategy, most market movements and news stories are not going to warrant a change to your portfolio.
Look at the Big Picture
Once you have recognized the emotions you’re feeling, it’s helpful to put things back into perspective and ask, “Why am I doing this again?”
Keeping our eye on the prize of a new home in a better location helped us deal with the daily disruptions of keeping our house spotlessly clean all of the time and changing our plans at the last minute to accommodate house showings.
The process was emotionally and physically draining. There were days each of us wanted to give up. It was important to focus on the positive and remind ourselves of the reasons we were doing this.
Watching your account balances go down in a bear market is awful and gut wrenching. It can feel like there is no end in sight and you would be better off to just give up, sell stocks and put your money in a mattress.
This is when we need to remind ourselves of the why: retirement, college planning, longevity, the list goes on. While moving to cash may provide an illusion of safety, it is not an efficient way to achieve long term goals.
Human Connection
When we had days where we questioned ourselves and the overall process it was helpful to talk not only to each other but also to our realtor who offered feedback and encouragement. Utilizing a trusted professional who is familiar with the process allowed us to vent our frustrations, but then stay on track with the proper plan of action.
Investing is no different, especially in a bear market. Having a financial partner and ally can be invaluable in helping you achieve your long term goals.
Human emotion and investing do not mix well. This is why the average investor underperforms the overall market and the majority of Americans do not achieve financial security. Having a plan and a partner to help you stay the course can be crucial to building wealth.
Be Open to New Experiences
It might surprise you to learn that I am a bit of a homebody. I enjoy the comforts of home and the stability of taking care of our children in a familiar environment.
When our house was on the market our daily routine was constantly interrupted. We spent a lot of evenings and weekends at Grandma & Grandpa’s house, fast food restaurants with play places, and having picnics in the park. The pack and play was always in the back of my van and we had to get creative about where our baby would take a nap. This added more stress to an already stressful situation, but the kids had a great time and got to spend more time with their grandparents and making new friends.
We now have fond memories of Saturday mornings at Grammy’s house and sandwiches in the park on spring evenings. Now that we live closer to everything it’s also easier to work these activities into our regular routine.
Saving for retirement can be very similar. A lot of times when we think about saving we think about what we are missing out on: eating out, putting a pool in the backyard, or driving a fancy car. But sometimes the quest to trim spending and save more can lead you to some unexpected perks like meeting new friends at a park, discovering a love of cooking, or even a passion for couponing.
