I’ve gone through the practice of logging my net worth since 2016. I think it’s a good way to track your overall progress (and process) over time, and helps to keep you on track with your financial plan. But, this year, a question about my net worth popped into my head. It’s a question that I believe will become more important as I get older and closer to retirement age.
Is this net worth number based on investments that are over priced, under priced, or fairly priced?
The question has sort of a hot, cold, or just right, straight out of Goldilocks and the Three Bears, feel to it. Which, to my mind, begs the question:
Why did Goldilocks have to try all 3 bowls of porridge?
Dismissing this young lady’s obvious lack of respect for the property of others, why not just look at the steam coming from each bowl?
Lots of steam? Hot!
Little to no steam? Cold.
Moderate amount of steam? Quite possibly just right.
Back to That Net Worth Question…
The stock market is not porridge, and it doesn’t throw off steam in any conventional sense to let us know we need to let the price come down before we buy, 2021 GameStop episode notwithstanding. High-priced investments can always get pricier, cheap investments can always get cheaper, and just right is really in the eye of the beholder, and a constantly moving target.
So, what are we to do?
We’re Not Done With the Goldilocks Analogy, Yet
Goldilocks tried all three bowls of porridge because the author was constructing a story with a certain set of themes.
With our lives, we’re all trying to write our own story, and that story that we’re writing for ourselves involves a price tag. And, I would hazard a guess that most of our stories involve not having to work even if we choose to do so. To accomplish our goal, we need to invest, and do so in a way that doesn’t try to find steam, or the lack thereof, that isn’t there.
Market heading higher? Don’t know…invest.
Market heading lower? Don’t know…invest.
Market could go sideways for a while? Don’t know…invest.
Consistent Participation; Dynamic Strategy
While we should be investing consistently throughout our earning years, that doesn’t mean that HOW we invest should stay the same along with it. As I get older, I have to begrudgingly admit that the question that prompted this post becomes more important. The closer I get to my desired retirement age, the more concerned I’ll become with whether the market drops just as I prepare for a drop in income.
I can look back at life and see differences in my goals, as well. My goals today differ greatly from my goals in my 20s and 30s. As the decade of my 40s gives way to 50-something and then 60-something, my goals will change over that time as well. I’ll want to protect my livelihood in the present, as well as prepare to leave a legacy for my niece and nephews, and maybe even a few strangers, to inherit.
That I invest cannot change; how I invest will have to change.
To give myself the best chance to accomplish whatever goals I may set for myself, I may need to move away from the stock market to some degree and make a move toward bonds and cash. These types of moves may protect my investments from a required withdrawal from a retirement account in the event a market downturn occurs at just the wrong time.
Staying on an Ever-Changing Course
Regardless of the exact path I take with my investment plan, I will continue to participate in that investment plan, and I will do so without concern about whether I might think stocks are priced fairly or not.
Here’s hoping you can tune out the noise (if you ever heard any) and do the same.
Thank you for reading.