Why It’s Good News that Investments Go Up and Down
Mr. and Mrs. Client, on your way to meeting your goals, your investments will go up and down in value. Now I understand everyone’s game plan is to buy something that goes up. That’s about the extent of the plan. The reality is investments go up and down in value.
Listen to the audio podcast or read the transcript to learn how to help clients understand that volatility is not necessarily risk.
What we have to realize is volatility is not risk. Volatility is volatility.
It’s not a loss, we don’t lose something until we sell. But the fact is, stock markets are volatile, short and medium-term. We know that. But the longer time horizon we have, the more comfortable we become with the ups and downs.
Fluctuations are opportunities.
Now I’ll just use mutual funds as one example. Let’s say a share of a mutual fund pays a dollar in dividends. And you want to retire on $50,000 a year in income from mutual funds. So when I ask you, how many shares you have to own, you say:
“That’s easy! If a share pays a dividend of a dollar, and I want $50,000, I have to buy 50,000 shares, Don.”
I’d say that’s right and I would ask you: “When do you want to buy the shares – when they’re up or when they’re down?”
“Well, when they’re down.”
The good news is, investments go up and down, not up and up.
And if we’re truly a believer, and truly committed to long term, we’ll be buying on the downs, adding to our account.
* This story about Mr and Mrs Client first appeared on Don Connelly 24/7 – check out our $1 30-day trial offer to gain access to more audio and video episodes.