I love to travel, especially to countries I’ve never visited. I’ve learned through the years that if I keep an open mind and a sense of curiosity, the experience changes my perspective and expands my thinking. Last month, I took an epic cycling vacation in Taiwan. After a few days of sightseeing, we rode the bullet train south, and then cycled up the entire Eastern coast. With its breathtakingly rugged coasts, lush mountains, and spectacular gorges, its beauty reminded me of Hawaii.
Before we arrived, I was a bit apprehensive about how smoothly we would be able to navigate public transportation, order at restaurants, and visit places of interest, since I don’t speak or read Taiwanese or Mandarin (thank you Google Translate!). Guidebooks are helpful, but you can’t truly appreciate how things work in a different country until you experience it. As it turns out, my apprehension was short-lived. It was easy to get where we wanted to go, decode public transit, order food, and find and use public restrooms. What makes traveling in Taiwan so effortless? They made it easy to learn what to expect, and that expectation was reinforced with every interaction.
A lot of the stress and fear of traveling can come from the unfamiliarity of a new culture, systems, and practices — basically not knowing how things run. In Taiwan, there are signs and directions that clearly tell you what’s expected everywhere — even in the most remote mountainous areas. If you’re waiting for the subway, there are arrows telling you where to wait, so riders can exit and enter the subway cars smoothly and efficiently. There’s no elbowing and shoving. Subway stops are numbered, so you don’t have to memorize the names of stations. If you’re waiting at a stoplight, you know exactly how many seconds you will be waiting, or in the case of cycling, if I need to speed up to get through an intersection. Dogs lie in the middle of the road and don’t move for cars or cyclists, and knowing this meant I didn’t have to worry about the dogs chasing me down. There are even signs in some restrooms that tell you in which direction to tear the paper towel after you wash your hands. No more half-ripped hand towels!
The stress of travel goes way down when you know what to expect. And wouldn’t you know it, the same thing applies to investing.
Investing can cause worry and fear if our expectations for returns or even the investing experience are unrealistic or misguided. Of course, we can’t predict how markets will perform and we don’t know exactly how things will turn out. However, having a clear understanding of what to expect — such as the bumpiness of the ride, the stability of income or dividend payments, the possible range of investment returns and outcomes for your portfolio — can greatly reduce the stress and anxiety of investing.
We often reference the average historical return of stocks: somewhere around 10% on average since the early 1900s. The mistake that investors make is taking this average and making it an expectation for future performance. Not so fast. A 10% historical average doesn’t mean you’ll earn a steady 10%-ish return every year if you invest in stocks. And even though stocks have generally had positive returns over long time periods, it doesn’t mean you’ll get a positive return every year. This average is earned over decades, and rarely was the return in any given year actually 10%. Some years saw gains well into the double digits and others years, losses of equal or greater magnitude. If you expect to get the average or even a positive return every year, and we experience a year like 2022 where the S&P 500 lost 19%, you might conclude that investing isn’t “working” and allow fear and disappointment to keep you from investing and earning long-term positive returns. And if markets end up performing better than the average, you may become overconfident and invest in riskier assets to stretch for greater returns.
To earn an average, you have to give investing the gift of time, often decades, and you need to set reasonable expectations that allow you to stay invested without worry. That means expecting that in some years your investments will be down, maybe substantially, but in others, they'll rise significantly, and everything in between. The path will be less unnerving if your expectations are set appropriately, and you don’t let what happens in the short term distract you.
Speaking of expectations … ours were exceeded when we learned that Ellevest has been named by InvestmentNews as one of the fastest-growing registered investment advisors (RIAs) in the country (#8 among fee-only RIAs with assets under management of $1 billion or more).* (Anyone who still thinks women are a niche market, think again.) October’s inflation data also exceeded expectations, coming in lower than what Fed policy makers predicted and sending the DJIA to a record high in November. The Dow gained 8.8%, the NASDAQ 10.7%, and the S&P 500, 8.9%. Bonds posted their best monthly gain since 1985, with the Bloomberg US Aggregate Bond Index up nearly 5%. Both stock and bond market gains were driven by investors’ belief — and dare I say expectation — that the next interest rate move from the Fed will likely be down, possibly as early as mid next year.
Berkshire Hathaway’s vice chairman and one of the world’s great investors, Charlie Munger, passed away last week at age 99. During his illustrious career, he shared timeless wisdom about investing and life, insights that only come from decades of experience. When asked about the secret to a happy life, he replied:
“The first rule of a happy life is low expectations. That’s one you can easily arrange. And if you have unrealistic expectations, you’re going to be miserable all your life."
What prudent advice, not only about life (and travel) but also about investing. Setting realistic expectations for the long term will help you stay the course with greater peace of mind.
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