Do you cringe at the red arrows ticking across CNBC each day? Maybe you know someone who over reacts and over compensates at the slightest financial hiccup. This is because some of us are not thinking about our personal finance future.
Take into account the retirement industry. We know how polarizing public pensions can be for those such as teachers, state patrol officers, snowplow drivers and other public workers. When working in these careers, if personal finance is thought about on a short-term basis only, these folks would lose out on many benefits that could have been accumulated if only the individual thought on a long-term basis instead. These funds take decades to touch, so imagine how short-term thinking could annihilate a retirement plan once it starts to build.
Speaking of Retirement Plans…
… Be sure that many experienced investors are involved. They are well aware that each year’s returns must be taken as a ‘grain of salt’ due to the fact that it’s all about averages. They know that one year’s dismal returns could be followed by years of double-digit returns. Experienced investors see the importance of keeping a business mind and not allowing emotion to dictate action. Frankly they realize the importance of thinking long-term when it comes to personal finance.
But What about the Financial Downturn??
Recent massive tumbles have forced us to remember the panic that ensued after the 2008 financial downturn. The ever-rising fear inducing headlines try to consume us with thoughts of our own financial security. But Do Not Panic!! For the benefit of your own personal finance, take the long-term financial perspective and drop the panic mode. Here are a few reasons why to make the change…
Financial Downturns… Old News!
Financial downturn is nothing new. Neither is the fact that ‘what goes up, must come down’. When the markets go up for an extended period of time, it’s inevitable that they will eventually go down. It is easy to get caught up thinking, when a downturn occurs; it is far more catastrophic than the last one. This is a common thought process for those of us who are not actively in the financial industry.
True investors, such as the CEO of Tuttle Tactical Management, Matthew Tuttle, let it be known that these financial movements should not ensue panic. He was quoted stating:
“With the Dow and S&P 500 reaching all-time highs in recent months, investors had to expect this. This bull market will die slowly, but all bull markets eventually die”; “These ups and downs are just part of being in the markets”.
Our nation’s history has a long list of economic crisis, many of which sent the nations people into a tailspin about what would happen next. In these situations an establishment of a long-term perspective will make the crisis seem minuet. You already posses the knowledge that another down turn will always occur at some point in the future.
PANIC= Faulty Financial Decision-Making
Can you recall a time in life where some sort of outside circumstance struck you with panic, which led you to make a less than optimal decision? Honestly, who hasn’t experienced this 1-1,000 times in life.
The Federal Reserve Bank of Boston released a paper where researchers explain,
“… events that destroy this sense of predictability and perceived control triggers panic, the feeling that crucial control has been lost and the future is unpredictable, and hence dangerous. Resulting behavior, including a retreat to safe and familiar options, aims to minimize exposure to such danger until a new model of how things work has been established”.
We saw this quote in action when the individuals shaken up by the 2008 financial crisis refused to reinvest after they pulled out. These were the ones who failed to think of personal finance long-term. Due to this mind frame, hundreds of thousands totally missed their chance to recoup their losses and potentially gain more once the market rebounded in the following years.
Let your long-term thinking of personal finance work FOR YOU!
Long-Term Perspective: Your Most Valuable Investing Tool
Taken from the mouths of experts, there is serious power in compound interest. They express the importance of making it work in your favor. Compound interest not only pays you for you initial deposit, it continues to pay you a percentage of your total accumulated funds.
Let’s say you start out with only $500. If your interest rate is set at 8% compounded annually, in 20 years you would have an effortless $2,330 from a single investment. Of course you would probably make more than one investment, which would lead to even greater gain.
Where from Here??
From here, I would say to continue furthering your knowledge of personal finance and proper investment. When scouring through the upcoming news, sit back and think of the long-term effect that will be produced. This will keep you on track with your best foot forward toward a secure financial future. No longer will today’s news wreck havoc on your financial decision-making.