Don’t Believe All You Read, Stand by Your Convictions

Suppose you are a coach. What do you say to your players to inspire them to think differently?

On March 29, 1982, in the NCAA national championship game, legendary North Carolina’s men’s basketball coach, Dean Smith, was faced with that challenge. With his team down by one point and only 32 seconds left in the game, Coach Smith called a timeout. Roy Williams, who was an assistant under Coach Smith at the time, experienced first-hand how changing a team’s mindset can be empowering. Williams said, “The talk he gave in the huddle was the most inspirational talk I had ever heard in my life, and it was the most confident.” According to Williams, Coach Smith told the team, “We’re in great shape. I’d much rather be in our shoes than theirs. Isn’t this fantastic? We get to determine who wins this game.” Williams said, “When they left that huddle at the end of that timeout, I knew we were going to win.” With 17 seconds to go, a little-known freshman shooting guard named Michael Jordan knocked down the winning shot to give Coach Smith his first national title.

Creating a winning mindset by thinking differently doesn’t just help teams win basketball games; it also applies to understanding the markets and how they relate to your personal financial situation. Prior to 2008, many investors felt they were doing just fine with their investments. They were regaining the confidence they lost during the dot-com crash of 2000-2002. The common refrain at that time was “beating the market.” In this case, the market was the S&P 500 index, which represents the 500 largest companies in the United States. When the financial crisis came, those same investors faced a reality check as many watched the value of their portfolios drop by as much as 50 percent. The question then became, what is more important, “beating the market” or not losing 50 percent of a portfolio? The answers differed depending on each investor’s circumstances. Many who were retired no longer had the willingness nor the ability to be heavily invested in one market and take on the risk of substantial losses. Others who were in their 30s and 40s had the ability ride out the volatility but questioned their willingness to take on extreme risks.

However, there were others who thought differently. Rather than trying to beat an arbitrary benchmark, they were investing to achieve or preserve their financial independence, regardless of where the S&P 500 stood at any given moment in time. These investors owned portfolios of broadly diversified assets, including small and midsize U.S. stocks, international and emerging market stocks, and fixed income securities, such as bonds. And during the so-called “lost decade” of the first 10 years of this century, when the S&P 500 averaged a negative return, these diversified investors owned asset classes that generated positive returns. These investors were successful because they remained true to their own goals and objectives, regardless of what the world around them was doing.

Another example of thinking differently is when investors seek investments that are in line with their beliefs. Social impact investing means different things to different people, but everyone who seeks socially responsible investments shares a goal of using their investments to make positive change. The key to successful socially responsible investing is to identify investments that are in line with your values and also provide the level of performance you require in order to achieve your long-term goals.

Financial independence often means different things to different people, and it can be difficult to measure progress on this journey, particularly in times of volatility. Are you sleeping well at night? Do you feel confident that your investments are in line with your beliefs and values? What rate of return do you need to realize over time to achieve your goals? Many investors without a clear understanding of what they need to achieve financial independence take on the risk of losing a significant percentage of their portfolio in any given year, but that’s not always necessary. Focusing on raw performance numbers can distract you from what’s really important, but focusing on your goals, your dreams for the future, your values and your beliefs can help you achieve over the long-term.

Financial independence means you can make your own decisions and your own choices. If you can reach financial independence and remain true to your values and beliefs, while at the same time taking on less risk, would that not be the best possible situation? We all want to make more money with our investments, but we must think differently. How do we invest in a way that allows us to take on enough risk to achieve our objectives without sacrificing our beliefs and long-term goals?

When you think differently, you don’t get caught up in the noise of the market. If you know your portfolio is properly constructed based on your beliefs to help you achieve your long-term goals, you will understand the purpose behind the assets that you own. You will feel good about the portfolio, be more empowered, have a better context for the construction of the portfolio, and not worry about the daily ups and downs of the market. Understanding why the portfolio is doing what it is doing, for better or for worse, removes the anxiety and gives you confidence. Eventually, you may even welcome a correction in the market as an opportunity to buy low, reduce your breakeven point, increase your investment in causes you believe in and position yourself for higher future gains.

Over the last several months, the equity markets have been volatile. The media outlets have had a field day predicting disaster at every turn, which plays to our emotions. The constant day-to-day movements can drive out the fainthearted or cause them to jump ship at the worst possible time. Now is a great time to take control of your financial independence before the next round of media mania commences. Take away all the noise that is out there, and think:

  • How can I simplify my financial life?
  • How can I stay disciplined and have the conviction to stick to a plan?
  • How can I remain true to my values and beliefs?
  • How can I invest to make an impact?
  • What is more important to me – Enjoying my retirement, my family and remaining empowered? Or trying to earn bragging rights with my friends that I beat the market in a given year?

When it comes to investing, we all have to choose a roller coaster. While big ups and downs are exciting for some, at the end of the day, many people prefer a smoother ride.

It’s time to channel Coach Smith; call a timeout and think differently. What does it take for you to remain or become financially independent? How can you invest to remain true to yourself, your long-term goals and your values? Have conviction, stick to a plan and you will eventually look back and be thankful that you didn’t waste years of your life worrying about your investments.

Social Impact Financial is a specialty practice of Creative Planning. Each of our dedicated teams specializes in socially responsible investing and includes an attorney, a CPA and a CERTIFIED FINANCIAL PLANNER™ practitioner. These experienced professionals are well-versed in a wide range of investment types and understand their potential impact on your long-term financial plan. For help evaluating socially responsible investments, or for any other financial matter, please schedule a call.

Jeff serves as a Wealth Manager, working directly with clients to develop and implement a strategy to address their financial, investment, insurance, tax and estate planning needs.