Sushi Money

        “Are we there yet?”  The ponderings of the market’s gyrations remind me of my son’s questions when we’re in the car.  “How much longer?” he also says.  When we travel together, we have a destination in mind… be that 20 minutes or 2 hours away, and as parents we try to patiently explain that we’re only a little closer than we were five minutes ago!  My wife has given up explaining it to him and simply says “two hours!” regardless of the time left on the trip.  He’s on to her though, and looks to me for a more rational answer.  I play the opposite role and give him a count down over time.  But he likes the game anyway and still asks Mom.  While learning the concept of time, kids struggle to balance their desire to “get there” with little understanding for how long it takes.  Plus, they’re not in the driver’s seat… they’re along for the ride.  

     We could look at it the same way with the market and our savings and investment goals.  Often we’re simply along for the ride, and we struggle to find some reference points or strategy that tells us in what direction the market will head.  We try to understand the concepts and data that influences market and economic dynamics, and how that affects our decisions.  We look for rational answers as to why the market did this, or why the market does that.  Yet I support the view that the market isn’t rational, because it’s involved with people… beyond the fundamentals and technicals, there are a host of emotions and global human interrelationships that influence market direction along the way.  “Are we there yet?” is a refrain I sometimes ask myself too often while checking the progress of stocks and mutual funds.  At those times we may look too closely and worry over short-term moves that make little difference to the goals we have for our future years.   Which brings to mind a favorite quote by Laurence J. Peter:

“If you don’t know where you’re going, you will probably wind up somewhere else.”

And,

“If you don’t know where you’re going, how will you know when you get there?”

    Good question.  If we really don’t know where we are going, then perhaps that’s the first thing we should be asking ourselves.  And if we are not satisfied with the rational answers for market dynamics that meets our need for explanation, then it’s time to look again at why we are in the market in the first place.  We can be in the driver’s seat… and I think that’s where developing financial goals can be extremely valuable.  Defining our financial goals helps in many ways:

• Financial goals provide direction among the constant wrestling between our wants and needs. 

                   “I want to eat out everyday for lunch, but I don’t need to… I can cut back and put that money in my IRA.  Let’s see… Saving $5 bucks a day, for two days a week = $10 a week x 4 = $40 a month deposited to my IRA x 12 months = $480 a year!  x 10 years at 5% = $6,211 !  At 10% that would be $8,194  after 10 years!  Gee… I wonder where else I can cut back?”

• Financial goals provide clarity among the fog of day-to-day issues, and allow us to remember why we are saving and investing. 

                   “Arrgh!  Paying rent for this place is driving us crazy!  I’m glad we’re saving for a down payment for our own house.”

• Financial goals, coupled with discipline and commitment over time, help keep us from making short-term emotional decisions that detract from long-term progress. 

                  “What’s going on with the market!?  Maybe we need to sell before everything crashes!  But wait, we really don’t need that money right now because it’s part of our retirement goals for 10-20 years from now…let’s take a breath for a few weeks and see how it goes.”

• Financial goals serve as a foundation for our overall financial well-being, so we don’t worry so much about short-term changes in market direction.

                  “I don’t know what the market’s doing… but while we work on paying down our debt, our monthly allotment toward investments will continue to make progress, especially in down markets… and it’s done pretty well the last five years, so let’s stay the course for our retirement goals.” 

• More simply, financial goals help us sleep better at night!

     We can be ”drivers” with our financial goals, navigating our way through life to one or more destinations we have in mind.  Markets go up, markets go down… but financial goals while saving, paying off debt and investing really only depend on the fact that markets keep going, and historically have always gone up over the long term.  For me, those goals are not focused on the short term.  While I do “ride” the waves of the market… I still want to stay in the driver’s seat.  Something tells me no one else is going to do it for us.  

* Next week we’ll look at financial goals in more detail.