The 10 Most Valuable Financial Lessons I Learned
The 10 Most Valuable Financial Lessons I Learned in 2018
By Trent Hamm Updated on 01-10-19
Getting Started
Each year, during the period between Christmas and New Year’s, I sit down and look over what happened during the past year, what I can learn from that, and what I can apply from that to the year to come.
I usually come up with a big handful of life lessons during that review, things I learned from situations in my life that didn’t quite go as I liked. What went wrong? Where did I go wrong? What can I do better?
These life lessons spread across all spheres of life and usually number in the dozens. I tend to literally make a list of them as I review the year as a way to figure out how to do better in the coming year.
Among the lessons I learned in the past year were 10 that have real personal finance implications, though some tend to branch over into other spheres of life. I thought it might be valuable to share those lessons, along with what I hope to do differently going forward.
Lesson #1: If the stock market is scaring you in terms of your future, you’re either not invested appropriately or don’t know what you’re invested in.
This is something I did right this year, but the bumps in the stock market reminded me of the panic I felt in 2008 when I watched my retirement balance fall by 40%. I didn’t change anything back then, but I was often sick to my stomach about it and my instinct kept screaming to run away from the risk.
But then… things recovered. Between 2008 and 2018, my retirement accounts tripled in value.
The stock market is swooning again, but this time I don’t have the butterflies. Why?
First of all, I recognize that the stock market will rebound. The entirety of the American economy is not going to disappear in a puff of smoke. There are millions of Americans out there every day working hard and innovating, and that’s where the value of the stock market comes from. This is a correction, like every other, not an apocalypse.
Second, I recognize that the stock market is only a place for individual investors to put their money if they have long term goals. If you’re going to use that money within the next ten years, it shouldn’t be in the stock market.
Over a period of more than ten years, it will enjoy several years of growth and multiple corrections, which is enough time for that investment to start to approach the long term average annual return of a stock market investment, somewhere between 7% and 10% depending on how you calculate it. I have nothing in the stock market that I intend to use within the next ten years.
I’ve honestly barely paid any attention to the ongoing correction. It’s just another good sized correction, like 2008, like 2001, like 1992, like 1987, and so on. It’s part of having investments in stocks – every several years, the stock market corrects itself.
If you know this and you still feel the butterflies, one of two things are happening. One, you’ve got too much risk – you have money in stocks that you’re going to need within 10 years. You fix this by moving such money out of stocks.
Two, you’re looking at the trees and can’t see the forest – the success of long-term investments is judged over the long term, not over a few months.
What I’ve learned from this correction is that I’m a lot more confident and sure about my investing plan for an early retirement than I was ten years ago and, because of that, there’s no risk of me making an emotionally driven bad financial decision in the face of a momentary change in the stock market.
Lesson #2: Give yourself plenty of breathing room in terms of both time and money when doing a major home improvement project.
To continue reading, please go to the original article here:
https://www.thesimpledollar.com/the-ten-most-valuable-financial-lessons-i-learned-in-2018/