How can I Ignore the Market Fluctuations and Keep My Money Invested With Confidence?

Before we get to the market fluctuations and investing with confidence, I have to tell you a little story. I recently took a relatively short 3 hour road trip with my Dad and my two boys. And while it was fun, there were certainly some interesting moments.

Aside from the classic, “Are we there yet?” we had to deal with the bickering in the back seat and the myriad of un-related questions.

invest despite market fluctuationsQuestions like, “What does the P in PA stand for?”

“Pennsylvania.” I answered confidently.

“Then what does the A stand for?”

“Uhm, . . . Pennsylvania.”

“Uhhhh, *eye-roll* You obviously don’t understand the question, Dad.”

Concern Over Our Direction at Any Given Time

The other interesting thing I noted was the digital compass in the rear-view mirror. You know, the one that says “N” when you’re heading north, and so on.

“Which direction are we supposed to be going?” one of my boys asked.

“Well . . . we should be heading in a westerly direction.”

“Then why are we going south . . . wait, now we’re going south-west! No north! We’re going north! Are we going the right way?”

Of course if you have driven on our nation’s highways at all, especially in the north-east, you know that they are never in a straight-as-an-arrow line from one city to another like connect-the-dots. They weave around natural obstacles like mountains and rivers. But eventually they do lead from one city to another – just not “as the crow flies”.

While I was listening to my boys squabble about whether we would eventually arrive at our destination, I couldn’t help but think how much we are like them when it comes to investing.

Driving is like Investing?

“Oh no! The market’s tanking. It’s going down. Wait! Now it’s going up!”

If you get nervous with the news media warning of an impending bubble bursting or market fluctuations and an eventual collapse, just take a deep breath. And know that the market always goes down . . . and then back up. Then down again. And then back up. It’s inevitable. The key is to not get caught watching all the market fluctuations.

If I based my driving decisions, like when to change routes, on what the rear-view mirror compass said, I would never get anywhere. Because obviously, there are no roads that go precisely in the direction I want to go – all the time. You have to trust the map, and the big picture. When the map shows that the road you’re on eventually leads to your desired destination, trust it. Someone who’s been there wrote the map, and left it for the rest of us.

route 80 fluctuationsCheck out this section of I-80. If this was all you saw or knew, which direction would you think this highway leads? North-west . . . right? I added the red line to help you see it . . . although it’s probably not needed.

Is this really the road we want to take? Based on this information, and the fact that we wanted to go west, my boys had a valid concern.

But if you zoom out and get the big picture, it looks like this. Because we know, if you’re from the northeast, that route 80 runs generally east and west. But it’s certainly not straight.

zoomed out route 80

So when you drive on I-80 because you want to go west, and the compass shows that you’re heading, at the moment, south, just go with it. And know that you’ll get there.

Market Fluctuations

The market has trended up over its lifetime. And on average it’s returned 7% (adjusted for inflation) each year. But each year is not positive. Some years or months are great, and others are horrible. Don’t get caught up in the hype and hysteria about the market fluctuations going up or down. Just know that it always trends up over a long enough time period. And that’s the key. You have to leave your money invested long enough to ride out those ups and downs. That could be 10 years or more! But trust the process. It works.

Buy a few market index funds, and then walk away. Don’t watch the digital compass that changes with every turn, and the sensational stories that try to forecast the next bubble. Just don’t! It’s not worth worrying about. You’ll only cause yourself stress and stomach ulcers. And nobody needs that.

So which direction is the market headed? Check out this chart of a particular stock price for one month. Should I be worried about this stock if I held it?

1 month graph of stock price

 

The answer is: You don’t know, nor do I. And obviously more information might help. Like which stock is this? What is the actual time frame? But what about more data? Does that really help? Or does it just muddy the waters?

Check out this longer period (more historical data) of the same stock.

zoomed out stock price

 

Now what do you think? Do you still know which direction it’s headed? It looks to be trending mostly up – right? Maybe starting to trend down?

I agree. And look at all the peaks and valleys in that graph. Are you willing to ride those up and down like an emotional roller-coaster? I’m not! I firmly believe in the set-it and forget-it mantra.

Take-aways

I’ve seen historical data or a map that tells me the stock market always trends up given a long enough time period. And that’s the key. Invest your money regularly, and then leave it.

Don’t get caught watching the rear-view mirror compass as the market fluctuations will give you a heart attack.

What do you think? Are you confident enough in the market to invest it and forget it?

Let me know in the comments, and thanks as always for reading and sharing.

-Chris

Author

Chris is the original Cash Dad. He's a father of 3 and a mechanical engineer by trade.

6 Comments

  1. I love how you tied it into your trip with the boys. It was a great analogy that I could understand. I for one don’t like the idea of stomach ulcers so it makes sense to do it your way.. ride it out. So this means we will be millionaires some day, right?
    Love you!
    Kate

    • Chris Reply

      Thanks, I don’t like ulcers either. And the plan is to be millionaires – someday. ?

  2. Really nicely written Chris, especially with the compass and the rear view mirror analogy. And as you rightly pointed out, we do become like kids when it comes to investing with the constant question of – are we there yet?
    You just put it into a nice perspective.

    • Chris Reply

      Patience is a quality that not many of us have. Wanting results/returns now can lead to hasty decisions, and lost money. Thanks for the comment and for stopping by.

    • Chris Reply

      Haha, that’s the attitude to have – whether it is or isn’t going up. Thanks for the comment.

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