Trust the process!
Josh recently wrote an article titled “Five Financial Lessons from the Dallas Cowboys”, and one of the lessons Josh highlighted is “Trust the Process”. I whole heartedly agree and have another example to help visualize why it’s important to “Trust the Process”.
Over the last 9 decades, the U.S. experienced 9 bear markets and 15 recessions or depressions, World War II and Vietnam, and any number of crises big and small. Yet $1 invested in 1927 could have grown to more than $6,229 by the end of 2017.1
The market consistently shows a remarkable ability to reward patient, long-term investors, and let’s face it, most of us are investing for the long-term. According to figures from the Society of Actuaries, a 65-year-old man has a 41% chance of living to age 85 and a 20% chance of living to age 90. A 65-year-old woman has a 53% chance of living to age 85 and a 32% chance of living to age 90. For married couples, the probability of one of them living to 85 or 90 is even higher. It’s important to keep this long time horizon in perspective when judging the success of our portfolio.
It’s like smoking (cooking) meat on a grill or, as we call it, smoking out. There is a definite process to smoking out. It also takes a long time! You prepare the smoker. You prepare the meat. You don’t want it to cook too fast. You want the temperature to stay consistent. You want to smoke the meat nice a slow, at a steady rate, and you’re willing to wait for it. You give the smoker time to work. You don’t check the meat too often … just periodically, to make sure everything is on track and adjust as necessary along the way. If you check it too much, it will stress you out, ruin the flavor and mess with your end result.
The same is true with investing. There is a process. It takes time. You want to have all of the areas of your portfolio addressed. You want to check it periodically and make adjustments as necessary, but you don’t want to check it too often. If you look at it too much, you may worry, over think it, and make decisions that don’t help your end result.
So, when it comes to your portfolio, focus on the long-term and how you are progressing toward your goals. Don’t let short-term market fluctuations affect your emotions and compromise your future. Trust the process and your plan, and don’t check the smoker all the time.
1DFA Returns 2.0