Finishing Strong

I had this amazing blog on ROTH IRAs almost completed and a couple of things happened. First, the Summer Olympic Games in Paris started; and second, there was a slight stock market correction that had been percolating since mid-July. I LOVE the Olympics. Forget all of the negative stuff on social media. I’m all about the athletes, the competition, and the shared joy when medals are earned.

As one of the announcers said to a Gold Medal winner, “From this day forward when people mention your name, they will also mention you are an Olympic Champion.” I will preface my joy in that before I started working summer jobs at age 14, I went to YMCA Summer track camps. I learned how to do the long jump, the high jump, 100-, 220-, and 440-yard races, and of course the relays.

One event in particular captured the hearts of all Americans and that was the men’s 1500-meter final. There was a lot of trash talking between a Swede and his sworn rival, a runner from Great Britain. Lots of trash! The Swede jumped to the lead very early, and ran a blistering time through the first three laps. He was focused on his rival, and only his rival. The Swede ran a great race for 1400 meters. In addition, by focusing on his rival, he failed to see two Americans – Cole Hocker and Yared Nuguse – coming up quickly on his left side.

For all of his arrogance, his trash talking, and his race strategy, the Swede came in 4th, completely out of the medals. The US runners took gold and bronze, and the Brit took the silver medal. It was an amazing race but the Swede finished poorly, which was obviously not his plan.

To me, saving for retirement and investing in general is all about “finishing strong.” I’m not talking about your chosen retirement age, but your life expectancy. Thinking about age 65 or whatever your chosen age will be is like the Swede running a great 1400 meters, yet falling short of his goal of winning the 1500 meters and not “finishing strong.” We need to be looking at age 85, or even 95!

When market volatility occurs, it doesn’t say “disinvest and race to safety.” What it does say is “reevaluate your risk tolerance and see if your investment strategy matches your ability to emotionally tolerate the current market volatility.” Yeah, most everyone’s 401(k) accounts were up double-digit last year. Anyone can make money when the market is good. The question is can you hang on through all of the volatility in order to “finish strong.”

Money is not math! It’s about managing your emotions to weather the day-to-day volatility so that you can finish strong. When you hear or see “The Dow Jones Industrial Average was down today on trading of (enter Charlie Brown’s teacher), it affects you. The question you should be asking yourself is, “Why does it affect me, and what can I do to prevent it?”

I speak a lot about financial myths and keep repeating them over and over and over. What’s the “speaker’s credo?” Tell your audience a stated fact. Tell them again. Tell them what you told them. So here is a short refresher course in some financial myths and facts.

• The Dow Jones Industrial Average (DJIA) has only 30 stocks. They are chosen by an S & P Dow Jones Indices Committee. The list can change at any time. In 1987, Walmart was chosen by the committee to represent the retailing sector of the DJIA. Guess who they replaced. Sears, Penney’s, and Kmart would be good guesses. It was Woolworth. If you’re younger than 55, you probably were never in one of these stores. (1)
• The S&P 500 is exactly that: 500 of the largest US stocks and once again, it is constantly changing. And it includes about 80% of the American equity market by weighting. The top 10 companies make up almost 32.5% of the entire index. So, 490 stocks make up the remaining 67%? See the disconnect here? (2)
• NASDAQ is the other exchange you hear on a daily basis. It’s the most active exchange based on the volume of daily trades. This is where the “tech stocks” sit. You know, Microsoft, Apple, Google, Nvidia, Tesla, Amazon, Facebook (a.k.a. META). As of this writing, these seven make up 51% of the total market cap weighting of the NASDAQ index. 51%. So as stated above, the remaining 49% of the index is made up of the remaining 3693 stocks. (3)
• Regarding the S&P 500 Index, which I would think that everyone reading this blog has some money invested in a mutual fund that mirrors it, the 10-year average annual return as of June 28, 2024, is 12.58%. This assumes dividends are reinvested and you are fully invested for the entire 10-year period. (4)

Okay, the goal wasn’t to make your head hurt. It was to help you realize that not all financial news makes sense. It’s factual, but you’ve got to see through the noise. So, when someone starts talking like Charlie Brown’s teacher, I want to help you see through it.

So, how do you “finish strong?” The first step is to hire a competent financial advisor that can help you work through all of these facts and myths. Someone that can take all of your goals, dreams, and wants, and put them into a set of strategic thoughts and actions that you can easily follow.

I call myself a “financial psychologist” for a reason. If you’ve gotten this far down the page, I appreciate it and I would love to be your advisor. Conversations are free, and I’ll buy the latte!

Let’s go run your race and “finish strong” together!

(1) Wikipedia.com
(2) Slick Charts: S&P 500 Companies by Weight
(3) Investors Business Daily
(4) Business Insider

Many thanks,

Brian

**Investing involves risk, including the potential loss of principal. All examples are for illustrative purposes and may not be indicative of your situation. Your results will vary. It is not possible to invest directly in an index.