I ran across the chart below while reading an article about retirement plans. It quickly...
Perspective Is Everything
Perspective is everything; it is shaped by your past, impacts the way you see the present and ultimately influences the way you live out your future. Last year highlighted the need for perspective in finance.
To help demonstrate the power and beauty of perspective I reference the work of renowned artist Georges Rousse, who created a permanent public art installation in the Starbucks at the Cosmopolitan of Las Vegas. While standing in line waiting to order your coffee, the art looks like it appears here in the picture below – “fragmented and chaotic” in the words of the artist himself.
However, when you stand on a brightly marked spot and view the installation from a particular vantage point, your perspective shifts and the full illusion is apparent. You see the art as it appears in the image below – beautiful and unified.
Perspective, and where you stand inside this Starbucks, can transform this frenzied installation into a colorful piece of art.
To bring this back to finances I’d like to mention a common cognitive bias. Recency bias is our innate tendency to believe that the most recent information or event is more valuable and important than those of the past. We often convince ourselves that something is more likely to happen in the near future once it has happened in the recent past; or that the longer it’s been since something occurred then the less likely we are to believe that it will occur again in the near future.
During a bull market, especially one that lasts eight years, it is easy to forget that bear markets and risk even exist. Then downward volatility hits, and it is easy to believe that it is worse than the bull market was ever good. There’s nothing like a playoff game win to drive up enthusiasm among fans of the Dallas Cowboys, despite 21 years since the team’s last Super Bowl win – something the recency bias makes easy to forget. #WeDemBoys
So the market took a hit in December but January has been better. It is not unwise to expect volatility in both directions throughout the new year. Thus, perspective is key. Focusing on your long-term investment plan and long-term average returns, rather than the markets latest-low or highest-high, is the best defense against recency bias.
While we are unable to precisely predict what will happen going into 2019, it is our job to help you navigate the unpredictable market and aide you in pursuing your long-term financial goals. It is with perspective that we can prevent the recent past from having an undue influence on your investments, we can see the beauty of art in an otherwise common place, and fair-weather fans can shamelessly cheer for the Cowboys again.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Investing involves risk including loss of principal.