A Matter of Perspective

Recently, the social media world blew up over a picture of a white and gold dress. Some people would look at the picture and see a white and gold dress while others would see a black and blue dress. Personally, I saw a white and gold dress and thought people were crazy who saw otherwise! Then my daughter said, while looking at the same photo on my phone, she saw the dress as black and blue.

I looked again at the photo on my phone, put it at a different angle and voila it changed to black and blue! Even when I changed the angle of the phone. Now, I was the crazy one.

This can happen when you look at your investments as well. Back, in the late 1990's, when internet stocks were soaring, a paltry return of an average growth mutual fund may only been 20-30 or even 40%. People would complain. "Why didn't I buy THOSE INTERNET investments" It was even more difficult to get people to consider a bond investments. The perspective of a normal equity return in comparison to the towering returns of those internet stocks shadowed peoples perspective. Fast forward to the crash of 2008-09, when the stock market was plunging and bond funds were only down single digits, people would moan, why didn't I own THOSE bond funds?!" Everything is in perspective to whatever is framing things. When the markets were bad people framed everything in that they don't want to lose anything. When the stock market is soaring they don't want to miss out. It often has no relation to what their actual goals are.

A sound financial strategy is based on your plans and is irrelevant to what your friends are doing- or what color the dress is. Lay out what your goals are and when you will need the money. Studies has shown that it is time in the market, not timing the market that is critical to your success. Make sure to have exposure to both stocks and bonds. In addition, make sure the stocks are spread amongst large companies, small companies, and companies based outside the United States. The same goes for bonds, they should be spread over corporations, government agencies, and internationally. How much you put in each category depends on when you will need the money. The longer the time horizon, the more you can allocate to stocks and riskier investments. Money you need sooner should keep in safer, more liquid bonds.

Steady hands at the till when it comes to investing are rarely very exciting, and generally don't cause too many arguments. But that is what we have social media for! Now I have to get back to Facebook and see what my friend's crazy cats are up to- and don't get me started again about that dress!