Here is a recap of market performance for August and year-to-date:
Financial markets declined in August. US small-cap stocks performed best, followed by bonds. US large-cap and International stocks fared the worst. Since the beginning of the year, bonds are down the least, while stocks are still down double digits.
Filtering the Noise
Recently, our investment team listened to Daniel Crosby, PhD, the Chief Behavioral Officer at Orion Advisor Services. Dr. Crosby is a psychologist and behavioral finance expert who specializes in how our minds approach and interact with our investments. During his presentation, he gave a three part test for deciding whether or not a piece of information is meaningful:
- Is it knowable? (Or, how likely something is to happen?)
- Is it controllable? (Can I do anything about it?)
- Does it have enduring value? (Will it matter in five or ten years?)
If you filter events and news through these tests, you may be surprised how few can pass all three. This means that most of the information we come across shouldn’t have a large impact on our daily lives.
Events we have no control over can cause us all a lot of stress. No one likes to feel helpless. Dr. Crosby gave these examples of things we can’t control:
- The trajectory of the market broadly
- Acts of God
- Federal Reserve interest rate decisions
- The behavior of politicians or CEOs
- The timing of the next bear market
- Inflation
- Geopolitics and war
- The housing market
But there is good news! Take a look at all of the things we can control:
- Our savings rate
- Having a formal financial plan
- Creating realistic financial goals
- Discipline around staying the course
- The type of financial media we consume
- Our emotions
- Awareness of our risk taking preferences
- Legally minimizing taxes
- Asset allocation/diversification of our portfolio
- Educating ourselves on investing basics
- Continuing education/increasing our earning potential
As your advisor, we want to help you focus and make progress on the second list. If you would like to talk more about one or more of these items, please let me know.