Emotions and Investing: A Guess is better than nothing

By:  Joe Thomas, CFA

"Feel like you can’t proceed until you have a bulletproof plan in place? Replace “plan” with “guess” and take it easy. That’s all plans really are anyway: guesses.” - Jason Fried

The author of the quote is referring to the over thinking process that I think a lot of us go through in many aspects of life, instead of doing anything we just simply do nothing. Consider the investing life cycle of the average person and the roadblocks to just getting started.

You’ve left college and you’re lucky enough to find a decent paying job right away. You’ve just started to make some good money and hopefully at least know you need to save, but you’re new to your job, you’re not sure where to start, you have some student loans, so you just do nothing. As you start to accumulate money, this means a nicer car, nicer clothes, and maybe your own apartment.

Now you’ve moved on a little bit into your life, likely your job is more stable, and maybe you’ve met a significant other.   Your financial focus tends to shift towards saving for that house and/or that wedding. That house needs a down payment and probably some upgrades. Saving for something thirty to forty years down the road just seems like it can take a back burner until after these things, and besides it’s not the “right” time to invest anyways.

I could continue, adding in the potential for kids down the road, but I will stop here and direct you to the graph below.   This data is provided by the Economic Policy Institute (EPI).

 

As we can see most people get to this stage in life with very little saving for retirement, prioritizing other items or awaiting that “perfect” time or plan. As the chart also shows there’s no great leap once the average person begins to approach retirement age either.

There’s never really a perfect time for most people, there will always be a roadblock without even factoring in the “noise” on the price of the stock market at any given second. If you’ve read enough of my writing you know a long-time horizon rarely benefits from trying to time you’re investing.

Just like the quote says any plan is just a guess, there aren’t a lot of things ten to thirty years into the future that we can predict with accuracy. We will refer to plans as dynamic, we know things won’t go exactly as planned but we will control our inputs (how much we save, how we invest) and be prepared for other scenarios (how our assets perform compared to how we projected). Waiting on that perfect scenario, whether it’s a market feeling or a comfort level, you’ll likely be waiting too long. We can’t control the performance of risk investments, but we can control how much is saved, spent, and how we choose to invest. A good guess or certain level of confidence in your plan is much better than never starting or not having a plan in the first place.

Investing involves risk, including the potential loss of principal.

Here is a link to full article which is very brief and worth a read:  Guess/Plan Article

Also link to CNBC article about Retirement Savings:  Retirement Savings

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