Monday Market Update – March 7

Forefront’s Monday Market Update

The Fee to Play

Nothing is free in this world, and the key to most things in the world is figuring out what the price is, and whether or not you are willing to pay it. This holds true for your financial life, just like it does for lots of other areas in life.

Back to Disney 

As I have written about before, June is quickly approaching, and Christina and I will be surprising our kids with a trip to Disney World. We leave the day after school lets out, and the kids have no idea. We will wake them up early on that morning, recording their reaction to what I can imagine is the greatest news an 8- and 7-year-old can possibly hear.

The cost of a park ticket has now exceeded $100 per person, per day, which, if you are doing the math, is not cheap. But for $100, you get an incredible day with your family, memories that will last a lifetime, and more joy than you ever knew your children could feel.

Do you look at the $100 as a fee or a fine? Would you be surprised to find out that your financial success can be gauged based on your answer to that question?

Fee vs. Fine  

Why are so many people willing to pay the price of cars, houses, and vacations, but try so hard to avoid paying the price of good investment returns?

The answer is really straight forward, and is the same reason my son would prefer his grandparents to give him a new Lego set, rather than add money to his 529 account. The price of education, much like the price of investing success isn’t obvious. At least not immediately. It isn’t something you can see or touch, so when the bill rolls in, it doesn’t feel like a fee for something good, it feels like a fine for doing something wrong.

People are okay paying a fee generally, but fines are meant to be avoided. You are supposed to make decisions that avoid fines, like driving the speed limit, and filing your taxes on time and correctly. Traffic fines and IRS fines imply that you did something wrong and are being punished. Most people will adjust to avoid these fines.

The people who see their portfolio values decline, and view that as a fine, will naturally respond by trying to avoid those fines going forward.

You might think I am nuts, but viewing market volatility as a fee rather than a fine will change the trajectory of your financial life forever. This one shift in thinking is exactly what is necessary to develop the mindset that lets you play the game for long enough that investing gains work in your favor.

The world today 

It is so easy to view the current market volatility as something more than the last time the market fell, or the time before that. Sadly, global conflict is nothing new, and as awful as what we are witnessing today is, it won’t be the last time.

Financial success isn’t about what is happening right now, but rather breaking your dollars up into time frames.

Those dollars set aside for the long term, such as retirement accounts, should be added to, and reviewed, but the current volatility is the fee you pay for long-term investing success.

I always laugh when I hear advisors tell people that the money they have in the bank is “losing” value. Of course, the advisor fails to mention his plan for the cash is a managed portfolio where he/she can be compensated.

But what if that cash gives you the comfort to leave the rest of your investments alone during a war in Eastern Europe, or a global pandemic? What if that cash allowed you to not be afraid of your boss? It allowed you to take a risk and take a new job that made you happier, and gives you more time with your children and family?

Volatility is the fee we pay for long-term investing success, and financial freedom. It doesn’t need to feel like a fine though, and how your plan is set up is what will dictate that for you.

So What? 

So how does this impact all of you?

  • Volatility is the fee we pay for long-term investing success, and financial freedom.
  •  It doesn’t need to feel like a fine though, and how your plan is set up is what will dictate that for you.

Stock market calendar this week:

3:00 PM Consumer credit
6:00 AM NFIB small-business index
8:30 AM Foreign trade deficit
10:00 AM Wholesale inventories (revision)
10:00 AM Job openings
10:00 AM Quits
8:30 AM Initial jobless claims
8:30 AM Continuing jobless claims
8:30 AM Consumer price index
8:30 AM Core CPI
8:30 AM CPI (year-over-year
8:30 AM Core CPI (year-over-year)
1:00 PM Real domestic non-financial debt (SAAR)
1:00 PM Real household wealth (SAAR)
2:00 PM Federal budget deficit
10:00 AM UMich consumer sentiment index (preliminary)
10:00 AM Five-year inflation expectations (preliminary)

Most anticipated earnings for this week: