Author: Steve Lane

Let’s face it, we all see headlines from time to time and it’s only human that they impact our mood. But with investing, our emotions can really trip us up.

Most people who are going to invest do it in one of two ways: They either do it themselves or they work with a professional. And regardless of the path, everyone can relate to the following graph:

Whether it’s a single stock or the market in general, stock values will move in waves that can rise and fall and wreak havoc on your human psyche. Consider the hypothetical wave on this graph and imagine how you might feel as the market, in whatever asset you are following, moves up. It’s human nature to think, “I want some!” That also happens to be a favorite line of my nine-year old son when he sees me hand something to his five-year old brother. Apparently, these feelings are with us from an early age and carry on as we mature. I want some! So we’re drawn to invest as the market moves up.

As the wave moves higher, you start seeing and hearing reinforcements. That may come in the form of headlines, co-workers, or maybe even from a friend – or, even more emotionally alerting, in a peer-group setting. You’ve probably been in a situation where you heard a comment like, “Wow, I’ve made a lot on (pick your asset)! Are you buying some too?” Many people at this point will start to invest – the “Buy!!” moment.

Almost inevitably, the asset will start to decline when emotion meets reality. In our illustration, this is where many feel that “Oh no!” moment. But, wait, it can get worse – because guess what emotion gets our attention even more than “I want some”? You guessed it, FEAR! Now, all of a sudden we’re in fight or flight mode and our hormones are kicking in and short-circuiting our more rational self. “Sell!!” Ahh – relief. “At least it’s not going to decline any more. I ‘stopped the bleeding.’” And then, like a twisted trick, the price inevitably starts going up again…and perhaps the entire cycle repeats.

I’d like to think I’ve never fallen into this trap myself. But, such is how we learn. As they say, experience is the best teacher.

One way to potentially enjoy the experience of investing is to work with a professional who has learned (ideally through personal experience, academic training, and work experience) how to help you navigate investing and tries to help you increase the odds of making the most of your money.

A professional can offer several useful strategies to help an investor avoid the emotional roller-coaster ride depicted in the graph. One of these is investing a set amount on a consistent basis (the process known as “dollar-cost averaging.”). This removes the “When should I invest?” decision.

Another strategy is to invest in a diversified portfolio. While this portfolio can still follow a wave-pattern, it provides an opportunity to increase the potential that the wave (and your experience) will be less wild.

If you’d like to visit about how we would approach investing with you, please contact us.

When I was in college, during my first accounting class, Professor Tim Shaftel, CPA, used a break in class to have a sidebar conversation. Prior to this, we were all taking notes on how to appropriately “debit and credit” something known as “T” accounts. For me at least, this wasn’t too exciting. But at the age of 20, I was about to wake up to the concept of compound earnings (a.k.a compound interest).

Professor Shaftel applied a jolt of electricity through me with his five-minute detour. He put up a slide that showed what happens when you invest from an early age and keep doing it every year. He made the assumption that you would earn 8% on your investment, and he ignored the impact of taxes. But what he revealed to me and the class that day changed my life. He used a simple table illustration to show how an investment of as little as $2,000 a year could turn into a million dollars after fifty years – figures I still remember to this day.

When should you, your kids, or your students start investing? Now! Let me build on the concept above and illustrate the difference between starting now and starting a bit later. (We won’t consider the third camp – those who never start.)

The following table illustrates what a consistent annual investment of $5,000 may become, assuming an 8% rate of return and ignoring taxes (for the sake of simplicity):

In the first table we see how compound earnings really start to add up. The person in this example contributed $5,000 a year from the age of 18 through 27 before stopping, for a total contribution of $50,000. Then, let compound earnings go to work and at the age of 70, she would have about $2.1 million! If this illustration gave you a bit of a zing (or jolt as it did me), now you know how I felt sitting there in the lecture. Needless to say, I had a hard time mentally returning to the class topic that day.

Contrast the first example with an individual who started saving at the age of 28 and made a habit of investing $5,000 per year for the next 42 years, until reaching age 70. That commitment worked well, and her investment reached a value of $1.77 million! That’s impressive – but you’ll also notice that she contributed $210,000, whereas the first person contributed “only” $50,000. Yes, the second person contributed more than four times as much…and ended up with 17% less. Compound interest (or compound earnings) rewards those who invest the longest.

If you’re wondering when is the right time to start investing, or when to encourage your children, grandchildren, friend, or student to start – consider sharing what you learned about compound earnings.

As our founding father Benjamin Franklin said, “Money makes money. And the money that money makes, makes money.”

If you’d like to visit about how we would approach investing with you, please contact us.

Looking back, 2024 clearly echoed many of the themes from 2023. By and large, the economy continued to defy expectations and surprised once again to the upside. Stocks continued their strong performance, driven by powerful trends in artificial intelligence and technology. On the other hand, the bond market experienced another lackluster year amid policy ambiguity and uneasiness over rising debt levels.

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