Harder Than It Looks

We always knew we wanted kids—just not for a while. My wife was working on becoming a physician assistant. I was building my career in financial planning. We decided together to wait for almost a decade before we took the plunge into parenting. Along the way, we’d imagine what it’d be like to raise kids. We’d plan out how we’d react in certain situations. We’d hang out with parents, then talk afterward about how to punish and reward kids properly. We’d have discussions about how we were going to approach screen time, curfews, and schooling. We had it all figured out. Raising a kid is easy when you’re doing it in your mind from afar.

As Jeff Immelt said,

“Every job looks easy when you’re not the one doing it.”

In real life, parenting is anything but easy. It’s equal parts exhaustion and joy. Raising kids is amazing—but also amazingly hard.

Having kids of my own has been a lesson in the difference between the idea of things and real life. There is the theory and then there is being right in the middle of it. You can plan all you want. But until you’re in it, you have no idea.
A lot of things are like that.

It Seems Easy

Let’s assume you’re just starting out in investing in the financial markets. You have 30 years before you retire.

I want to prepare you for what’s to come.

Based on historical averages—over the next 30 years—you’ll likely deal with three to four different drawdowns of 30%. You’ll see, on average, six declines of 20% or more. Prepare for a 10% dip as often as your birthday.

You don’t know when the drops will come. But they’re coming.

The payoff for holding the line is—by the time you retire—you’ll be a millionaire.

Can you do it?

That seems easy. You’ll tell yourself you can handle it. And maybe you can. But I’ve found discipline is only easy in the future. Just think about all the times you’ve thought, “Diet starts on Monday.”

Staying the course when the numbers are hypothetical is vastly different than when the money is real and the reasons for the decline are scary:

• A global pandemic
• War
• Inflation

When thinking about future market declines, they happen in a vacuum—an isolated event with a clear start and endpoint. When you’re in the middle of one, it can feel like the world is unraveling.

As Morgan Housel writes,

“All past declines look like opportunities and all future declines look like risks.”

Context matters. Looking back provides the luxury of knowing the ending. History seems inevitable when standing on the firm footing of today. When reading about past events you tend to forget how different things could have gone.
When you have the answer, the test always seems easy.

It’s Not Easy

Peter Lynch is an investing legend. He managed the Fidelity Magellan fund from 1977 to 1990. During his tenure, the fund had an annual return of 29%. That’s one of the greatest runs by any fund manager in history.

For some perspective, if you had invested $10,000 in the Magellan fund in 1977 and came back in 1990, you’d have $273,947. All you had to do was put your money in, go live your life, and come back to your nest egg being 27 times greater than where you left it. Sounds easy enough.

So what happened in real life?

According to Fidelity Investments, the average investor lost money in the Magellan fund from 1977 to 1990. Let that sink in. The fund had a cumulative return of 2,639% while the average investor in that fund ended up losing money.

How is that possible?

It’s possible because investing in real life is scary. Just think about some of the major events that happened during that time:

• The Cold War: Geopolitical tensions between the United States and the Soviet Union (Sound familiar?)
• “Black Monday”. The S&P 500 dropped 20.47% in one day. The Dow Jones dropped 22.6%. The greatest one-day drop in the history of the stock market.
• The North American drought. One of the worst droughts in US history spanning over three years, costing the country billions of dollars, and killing thousands.

In many ways, investing is not a test of skill. It’s a contest of the strongest stomach.

Start Small

Steven Ambrose writes about soldiers during WWII:

“There was no way training could prepare a man for combat. It could not teach men how to lie helpless under a shower of shrapnel in a field crisscrossed by machine-gun fire.”

This is true for all hard things in life. You can visualize, practice, and train. Others can share their wisdom. You can chip away at understanding with tactics and study. But there is nothing like being in it to teach you the ways of the world.

The cost of experience is—in some way—pain and suffering. This is why I tell people to start saving and investing early in life. You probably think you’re about to get a lecture on the power of compounding. Yes, time is the greatest contributor to investment returns. But there is another reason to start early. Starting early means you’re starting small. Starting small means you’re building a tolerance for pain. Time unlocks the power of compounding. But the key is resilience. It’s easier to cultivate resilience when there’s less on the line to lose.

Start early—start small. Practice feeling pain when the stakes are low. You’ll be more likely to stay the course when the stakes are high. You might be thinking, “It’s too late for me to start early”. That’s ok. Start now.

Most importantly, remember to give yourself a little grace along the way. This stuff is harder than it looks.

Here’s to making money matter!