Why Patience Is The Unsung Hero Of Financial Planning

Spring is notorious for its up-and-down weather patterns – one day it’s rainy and cold, and the next you’re looking for your shorts and tee shirts. It can be a bumpy ride, but every year we know it’s going to happen, and every year we know that, sooner or later, the temperatures will trend upwards and sunnier times will prevail.

And that makes spring the perfect time to share some thoughts about another process that, despite a lot of short-term unpredictability, also has proven time and again to trend upward. It can be difficult to think of the market this way when we are in the throes of a downtrend, but there are a few points to consider that can help us see the wisdom and necessity of patience in financial planning.

Volatility is a two-way street

For most of us, the word “volatility” has a negative connotation. We tend to invoke the term only when something negative impacts the market: a recession, an unforeseeable crisis like the pandemic, or the present situation with inflation. In reality, volatility in the market simply means changeability. It has two sides to it: the downside, and its corresponding upside – but when was the last time you heard someone refer to a bull market as volatility?

When we step back and look at the big picture, we see three things:

  1. Volatility is a given.
  2. Volatility brings both short-term lows and
  3. Volatility presents us with extremes that can make us feel either euphoric or anxious, but neither of those extremes is lasting, and neither is a sound basis for long-term financial planning.

So that begs the question: If we can’t count on the highs or the lows to last long enough or be consistently predictable enough to be a valid guidepost for financial planning, what can we count on?

The law of averages

When it comes to statistics, everything centers on the average. It’s the average that ultimately yields your results. What you bring with you into retirement and what you leave as your legacy is based on the average over time – not on any one upswing or downward trend, however momentous they may feel while they are happening.

Think of the market as a pendulum. There is a continuous motion of swinging back and forth; the moments when the pendulum is actually at dead center are relatively rare, but that center point is what the wide arcs to both the left (downtrends) and the right (upswings) average out to.

We happen right now to be on the far end of a leftward swing. It feels like we’ve been here forever, and it’s not easy to wait – or even to trust – that the pendulum is going to swing back through that average. But it will. And because it’s going to swing through the average, this downtrend of below-average returns is really setting the stage for the upward trend of above-average returns.

Patience pays off

There’s one other thing to remember about the swinging pendulum of market behavior. In order to capture that average return – which history shows us actually trends up over time – we have to be willing to go through the swings. Hanging on is easy when the arc takes us to an upswing, but times like these are our true test of patience. It’s natural to feel uneasy and anxious now because we just don’t know exactly when things will swing back. But the real challenge of strategic and purposeful financial planning is to act on the average, even though we spend less time there than at either end of the pendulum swing.

At N1 Advisors, it’s that solid, data-backed, and reliable average that drives our financial planning. We don’t build or rashly alter your portfolio based on the swings because we don’t know when they are going to happen or how long they are going to last. No one does. What we do know is that over time, the market has continually yielded returns that trend upward, and when we stay the course with long-term planning, we give our clients the greatest possible likelihood of reaching their goals for financial independence.

The team at N1 Advisors is honored to stand by your side through all of the short-term ups and downs and work with you toward the future you are planning for yourself and your family.