When I was twenty-two, I went to one of those web calculators where you punch in numbers and find out how long it will take to become a millionaire. Who knew it would be so easy? Just put aside a couple of hundred dollars a month for a certain number of years, and you’d make it. Of course, nothing is so simple. Then life happened: I got married, and had children, then came the dot-boom bust, followed by the 2008 recession. Those websites assume a certain rate of return, and they are designed for linear growth, but the economy never follows a straight line. The market — like life — goes in cycles.
What is a market cycle?
Most of us are familiar with market cycles. These are the patterns of boom and bust in the economy that occur over time: Expansion followed by recession followed by recovery. We know the basic trajectory, but no one can tell you when the next phase will begin and waiting for the right moment will leave you standing there a long time. There is no such thing as perfect timing.
But even if you knew when those booms and busts would happen, who’s to say the market cycle would match up with your own life cycle? Maybe the economy is about to turn over, but you still have goals: Send your kids to college, build your retirement, save money for a house. That adds another layer of complexity to the question of how and when you invest, and as someone whose job is to follow markets, what I notice is that clients tend to focus on one of these cycles but not the other. Our job is to help them navigate both — to sync up the needs of their life cycle with the inevitable fluctuations of the market cycle.
What is a life cycle?
Depending on where you are in life, you think about time differently. When you’re a baby, your time exists in minutes. I want my food. I need to be changed. When you’re a teenager, you start to think in hours. Classes, after-school sports. When you’re in your twenties, you’re thinking in weeks. The clubs you’ll go to on the weekends. When you’re in your forties, you’re thinking about months. The mortgage, the kids’ schedule. The peak of this cycle is when you’re 50, and you start wondering how many more years before retirement, your kids going to college eventually. Then things head the other direction. After retirement, you’re no longer thinking in years but months. By your seventies and eighties, time shrinks again. All you want is one more week. One more hour with your family and the people you love. And as we die, the cycle shrinks down to minutes.
While this sounds philosophical, it has implications for financial strategies and planning. Depending on where you are in life, you will have different priorities, different ways of thinking about your needs, and our goal is to help you focus on the big picture, building up a strong financial base to help when the unpredictable happens. Just as the market contains volatility, so does life. Emergencies happen. Circumstances change. People lose jobs, lose family members, move to another city or state. None of those were included on the straight line to becoming a millionaire in twenty years.
How we can help
The team at Sendero are experts in the market, but we’re also coaches who can help protect people from their own impulses. There are a zillion pieces of information out there in the age of Twitter and 24-hour news cycles, and part of what we do is to pull out one or two pieces of information relevant to allocation. Sometimes the best thing to do is nothing.
One of the most common mistakes we see clients make is to get too emotional about their investments at the most inopportune time. As you can see in the chart below, the most dangerous time for a client to invest is in a euphoric state, which is often when they most want to throw money into the market. Statistics and data can show us emotional decisions are not necessarily good ones.
Our job is not just about maximizing returns. It’s about people and relationships. It’s about helping bridge the gap between money and life goals and finding how those can work together. You can’t control the market. You can’t control the future. But planning and financial strategies help when problems hit, or when the market is crashing. The cycle of boom and bust is part of nature, and never a reason to panic. But it’s worth asking at those moments: What are my goals? Am I thinking in years, months, weeks?
I look back on that twenty-two-year-old version of me, punching numbers into a calculator on the track to becoming a future millionaire. I wish I’d invested more in my twenties, with an understanding that raising a family would be more expensive than I anticipated and investing more in the early part of life might help ease things down the line. I didn’t yet understand the ebb and flow of market and life cycles. But part of what we also counsel clients about is realistic expectations. Maybe becoming a millionaire wasn’t the right goal, and a better one would be assuring safety and security and time with my family. Whatever you goal is — we can help you get there.
Amaury de Barros Conti