I feel very lucky that I like my job. I work as an engineer on a project with about fifty people, and we all sit in one big room. I really feed off of the collaborative problem solving that happens when a bunch of engineers sit in the same room together.
But like any job at a large company, there’s plenty to dislike too. My job has its share of pointless meetings, mind-embalming compliance training videos, and ‘cake in the conference room’ forced-fun events. And as with any project of a certain size, there are difficult personalities, and plenty of conversations where afterwards you wonder if everyone was even speaking the same language.
On days when the dislikes pile up over the likes, I really feel like I earn my salary. In my mind, it’s the difficult parts of my job that I’m actually getting paid for. The rest of it – the fun stuff - I might even do for free.
We can apply this to investing. As an owner of investments, you get paid: in dividends, bond interest, principal appreciation, and possibly even rent payments. Rental properties require some amount of maintenance and management effort, but equity and bond ownership requires almost no work. For these latter investments, where money may show up with no labor, almost as if by magic, what are you actually getting paid for?
Generally speaking, you work for your investments in two main ways.
1. Your Deferred Consumption
You’re getting paid to hold off on spending your money. This is the bedrock foundation of financial planning. Investing for the future inherently means living less than your highest achievable lifestyle. It’s driving the car a little slower so the gas tank will get you an extra ten miles.
2. The Volatility of Investments
Sadly, some investments do not move upward forever like an escalator to the sky. Many investments, stocks in particular, resemble rollercoaster rides. Hopefully, they end in a better place than they began. But along the journey, you can experience big ascents and stomach-churning drops. The number and severity of an investment’s peaks and valleys is called its volatility. When you own an investment, volatility is what you’re being paid for. Specifically, you’re paid for watching the volatility and doing nothing.
It’s important to remind ourselves of this, especially in 2015. Lots of investors have piled into the markets after watching the big gains of the last five years, and I imagine that many of these new investors are none too pleased with 2015. Most of the year has been flat, with certain weeks being mostly negative for investors.
But that’s okay. We’re just in the part of investing that resembles the bits of my job that I hate: a boring meeting, or a performance review. It’s not fun, but it’s the whole reason investments make us money in the first place. In my opinion, it would be a mistake to stop investing, or sell your existing investments, just because the market has been flat this year. Selling stocks just because of a lack of “exciting” market movement would be like quitting a job every time we had to perform some task that we didn’t like.
If I did that, I’d be missing out on all the great parts of my job. But more importantly, I wouldn’t be getting paid.
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The views expressed are for informational purposes only and are not intended to serve as a forecast, a guarantee of future results, investment recommendations or an offer to buy or sell securities by FutureAdvisor. All expressions of opinion are subject to change without notice in reaction to shifting market, economic, or political conditions. The investment strategies mentioned are not personalized to your financial circumstances or investment objectives, and differences in account size, the timing of transactions and market conditions prevailing at the time of investment may lead to different results. Clients may lose money. Past performance is not indicative of future results. Investments in securities involve the risk of loss. Any tax strategies discussed should not be interpreted as tax advice and do not represent in any manner that the tax consequences detailed will be obtained. Clients should consult with their personal tax advisors regarding the tax consequences of investing.