But What Inputs?
I appreciate the flood of comments I've received from yesterday's post. If you missed it, I discussed the importance of focusing more on the inputs than the outputs. Instead of dwelling on the outcome, we should fix our attention to our decisions and contributions that go into xyz endeavors. I used the example of Northern Vessel's recent record-setting day. While the numbers from that day (outputs) were amazing, we chose to reflect on the inputs that ultimately made it happen.
Several of you asked for a real-life example of inputs vs. outputs that would apply to the vast majority of readers. Your wish is my command! I have a great example to share, and I hope it lands well.
As you probably know, I love investing. It's been a passion of mine since I was 16 years old. To summarize, I'm a big believer in investing in the entirety of the U.S. stock market, paying as few fees as possible, and remaining extremely patient. Doing so has a 154-year track record of success (9.2% per year over 154 years and 10.4% per year for the last 100 years).
All that said, it's a mess! By "9.2% per year," that doesn't mean the market returns 9.2% each and every year. That's the long-term compounded average. The road to get there is rough! To illustrate that, guess how many years in the history of the stock market have provided a return in the 8%-10% range...........
............three years. Only three times out of 154 years (1912, 1916, and 1993) have resulted somewhere in the 8%-10% range—the rest fall on either side of that. The market has done as well as +53% (1933) and as bad as -40% (1931). Over a five-year span, the market has done as well as +23% per year and as bad as -11.5% per year. Again, it's a mess!
As such, we would do ourselves a tremendous disservice if all we did was focus on the outputs. If we judged ourselves on how our investment portfolio played out in any given year, it was be an emotional rollercoaster. One year, you'd feel like a genius, and the next a total failure. That's the consequence of focusing too much on the outputs.
Instead, we should focus on the inputs. Here are some examples:
Am I investing in the right type of funds? I'm a huge fan of the S&P 500 or total U.S. stock market indexes.
Am I investing with as few fees as possible? Most of my clients pay 0.04% or less (vs. most people paying 1.5%-2.0%).
Am I consistently contributing? It doesn't matter what the stock market does if you're not contributing.
Am I being patient? Selling or making knee-jerk adjustments is destructive.
If you have the right answer for each of the questions above, it doesn't actually matter what your portfolio does this year or any other year. You're focusing on the inputs, not the outputs. When we do that, the outputs will take care of themselves.....eventually.
You won't beat yourself up. You won't lose sleep. You won't obsess about volatility. You'll just live your meaningful life.
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