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Lauren’s blog covers topics that impact your finances, your family, and your future. Is there a topic you’d like Lauren to tackle? We’d love your suggestions and feedback.

Mindfulness and markets: a perfect match

Mindfulness and markets: a perfect match

Last weekend I attended a day-long workshop with Sharon Salzberg, a world-renowned author,  teacher, and influencer who, for decades, has been an important voice in the modern movement toward mindfulness and meditation. The title of the workshop was “Equanimity in challenging times.” The timing couldn’t have been more perfect.

Salzberg opened the morning with a simple sentence: “Some things just hurt.” (Isn’t that the truth?!) Of course, her message was about much more than the fact that pain exists. The focus of the day was learning how to stay balanced—to find a path to calm even when it feels like you are being tossed in the storm. Sharon went on to talk about how maintaining balance inside ourselves gives us the power to stop reacting to the small things, and (at long last) to focus on the things that matter.

What an important message! It’s something most of us know on some level, but achieving equanimity is easier said than done in our day-to-day lives. After all, “some things just hurt,” and trying to stay calm when we feel pain can be a major challenge.

That can be especially true when facing a financial challenge. Money, inherently, is an emotional hotbed, which means that the smallest issue can create fear, panic, shame, and a slew of other negative feelings. We’re human: we imbue money with power, and we often cannot control our obsession with it. (Read more on money and emotions in my blog post, Finance, and feelings: Navigating life's twists and turns.) However, what we can do is find a new perspective.

Maria called me the other day, awash in emotions about the current stock market and its impact on her portfolio. At 67, she is in her first year of retirement. As a widow, she is on her own financially. Like many women in her position, her biggest fear is outliving her assets—of becoming a penniless bag lady in her final years. “Since December, I’ve lost more money than I can stand to think about,” she told me. “I worry about it night and day. I can’t take it much longer!”

Maria is no financial novice. She understands how the markets work, she has saved well and invested wisely, and she’s old enough to have watched the market swing back and forth—sometimes wildly—many times. Her fear of the future has thrown her off balance. To ease her mind, I began by telling her a story about one of my challenges: acrophobia. Yes, I suffer from a terrible fear of heights.

I told Maria the story about the night I drove up the coast to a fabulous party with great friends. I had been looking forward to the evening for weeks. As I approached the Malibu cliffs, that old fear started to take hold. I suddenly had the overwhelming desire to turn back. All I wanted in that moment was to be home, safe and sound, with no cliff to be found. (Even re-telling the story now, I can feel my heart beating way too fast in my chest!) I felt totally and completely defeated. I pulled over to the side of the road—not the cliff side!—and called the host to tell her I couldn’t make it. I can still hear her calm, soothing response:

“Lauren, you can do it. Just breathe…and don’t look.”

My friend was right. It wasn’t easy, but I took a deep breath, and I just drove. Once I arrived, every minute at the party was extra sweet. I had accepted that the best way out of emotions is through them. I’d found a path to equanimity by simply following the road to the party.

Of course, keeping Maria’s portfolio is much more important than my ability to attend a party (no matter how fabulous it may be!), so I added to my story by reminding her that this momentary dip in her portfolio is likely just that: momentary. Then I showed her this chart that illustrates the percentage of positive returns of the S&P 500, from the beginning of the index through 2017:

Providing this new perspective helped tremendously. Looking at the market from a distance, Maria saw today’s shifts in the market for what they are: short-term “blips.” Did that make it any less painful for her to see that her nest egg is down by double digits? Absolutely not. As Sharon Salzberg said last weekend, “Some things just hurt.” Despite the pain, Maria could feel that there was no reason to panic. I repeated the words of my friend in Malibu: “Just breathe…and don’t look.” Easier said than done, I know, but Maria is doing just that.

Late in the day on Saturday, someone asked, “Does meditation really work?” Salzberg replied that, yes, it does, “just not always the way we expect it to.” She said that it “works” as the result of a lifetime of regular, dedicated practice. I have to wonder: maybe she was talking about investing the whole time after all. 

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To stay on track in today’s market, simply take a look at the past

To stay on track in today’s market, simply take a look at the past

So far, October 2018 has been a discomforting reminder of what it means to be an investor. Intellectually, we all know that wise investing requires carefully balancing risk and reward over the long term. Despite having lived through the financial crisis of 2008, the Dot-com crash in early 2000 and, for some, the stock market crash of 1987, it’s been easy to forget about the risk side of the equation in recent years. As “the market” and our portfolios have swelled to unimaginable heights, we’ve come to expect long-term, stable, extreme growth, and we fear any loss of those gains.

Last week, the market dipped into potential correction territory. It’s no wonder that we’ve been getting a few calls and emails from clients who are feeling a new level of stress and anxiety. The two main concerns we’re hearing right now are 1) the stock market keeps going up (so it must crash soon!), and 2) my portfolio is performing much worse than “the market.”  These questions can make any investor feel like they need to do something. The place to begin is by addressing these very emotional concerns. As Benjamin Graham famously wrote 70 years ago in his book The Intelligent Investor:

“The investor’s chief problem—
and even his worst enemy—is likely to be himself.”

As long as you have an investment strategy in place that is designed to meet your goals and your needs, my short answer about what to do is simple: nothing. Here are some facts to help alleviate investors’ two main concerns, no matter what the market does next week, next month, or next year:

  • What if the US stock market crashes?
    A quick look at some facts about your portfolio and the market itself can help put the fear of a looming crash in clear perspective. First, if you’re a client of ours, the percentage of your portfolio in S&P US stocks is somewhere between 9% and 30%. That means that stocks play a balanced role in your portfolio, which is diversified in other assets like bonds, real estate, and international stocks. This diversification is designed to protect you from a US correction. Your allocation is designed to meet your goals through ups and downs, so sticking with that allocation is going to be your best long-term investment strategy.

    Second, no one can time the market. If you try to guess when to get out and back in, the odds are overwhelming that you will guess wrong. For more in this, see my blog post Volatility, escalators, and yo-yos from three years ago in October 2015. (Yes, it is the same old story!)
  • Why isn’t my portfolio keeping up with the stock market?
    No one wants to miss out on big gains. Headlines keep reminding us how great the US stock market is doing. It’s time to address this media-fueled FOMO (fear of missing out!) once and for all.

    Since most clients have less than 25% in S&P stocks, it’s not an apples-to-apples comparison between balanced portfolios and the US stock market. Also, when it comes to your long-term returns, risk matters, and the S&P 500 is about 180% riskier than our balanced portfolios. Lastly, bond prices, which also make up a portion of a balanced portfolio, have decreased this year, but these losses are temporary paper losses. For more depth on this topic, see my blog post Wall Street has gone wild! Is it finally time to change your investment strategy?

This is the perfect time to take a trip down memory lane. I opened the doors to Klein Financial Advisors in 2003, just five years before the financial crisis. This September marked ten years since the failure of Lehman Brothers, which is considered the triggering event of the financial crisis and the great recession. Consider these numbers for some perspective: On October 11, 2007, the S&P 500 Index closed at 1576.09. On March 9, 2009, the S&P 500 Index bottomed out at 676.53. That means that an investor with $1,000,000 in stocks would have seen the value of her investment drop by more than half, to $430,000.

In the weeks, months, and years that followed the crash, I held a lot of clients’ hands and successfully shepherded them through the financial crisis. Fear was rampant, but I assured them that the market would rise again and their portfolios would recover. However, many other advisors did not. Some advisors allowed their judgment to be affected by fear and inexperience. Many investors fired their advisors and went to the sidelines. After the crisis, many other advisors ‘played it safe’ by saddling their clients with illiquid, low-returning annuities and non-traded REITs—products designed by banks and brokerage firms to “limit volatility” and therefore investment returns. And just last year, after the 2016 election, some advisors counseled clients to hold cash for months. It was a costly mistake.

Experience, education, and judgment matter. Remember that so-called experts in the financial media industry are entertainers. Single-day returns are largely insignificant, and your portfolio is tailored to you and your life goals. So we repeat our mantra: stay disciplined and stay the course. And if you ever feel doubt creeping in, give me a call. I’m a skilled and patient hand-holder, and I’m always here to help.

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All written content on this site is for information purposes only. Opinions expressed herein are solely those of Lauren S. Klein, President, Klein Financial Advisors, Inc. Material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness. Read More >