BUZ LIVINGSTON: Emotional investing dooms you

Staff Writer
Walton Sun

Kris Kristofferson certainly appreciated the royalty checks when Johnny Cash covered “To Beat the Devil.” If they gave me a vote, Kristofferson’s original version (sheer genius) would be in the Americana Hall of Fame. Before the music, he speaks directly into the mic, thanking “John and June who helped show me how to beat the devil.” Today I want to thank John and Jane for helping me.

Before he became an Edward Jones advisor, John McBroom flew as an Army aviator, not be confused as an Air Force pilot. John was my first mentor in the investing world. While my tools and techniques have changed, I owe him a debt of gratitude. He helped me stump a CPA when I first checked out SEP-IRAs.

Jane Burns has an Edward Jones office in Blue Mountain. She always supports the South Walton Community Council’s Back to Nature Festival. When I came by her office promoting Back to Nature, we discussed client expectations in light of current events. Jane showed me an assortment of Time magazine covers dating back 40 years and all portended doom.

In January 1972, Time wondered if the USA was bankrupt. Back then, a nice set of wheels cost $2,500. Assuming you invested that sum in the S&P 500, you would have almost $115,000 today or enough for three or four nice cars. Jump forward 20 years and Time’s cover featured a hypothetical breadline and wondered how bad things were. If you invested $10,000 on Jan. 1, 1992, it would have grown to more than $50,000. In 2002, Time again forecast doom. Assuming a $20,000 investment on January 1, 2002, your portfolio would have grown, despite the worst stock market since The Great Depression, to $30,000.

Some important lessons emerge.  In 1972, there were many reasons not to invest in stocks.  From January 1969 to December 1971, stocks returned less than 2 percent. Likewise decades later, similar if not more ominous concerns lurked. Famines, pestilence, disease and an over-crowded planet could prove vexing but we have faced similar problems in the past but long-term investors have benefited.

Albert Einstein allegedly said (there is some dispute) nothing in the universe is more powerful than compound interest. In our example we began with a much lower initial investment in 1972, however, its growth dwarfs the later, yet larger, outlays. Granted the bull market of the 80s pushed 1972 investment’s return but time in the market is more important than timing the market. Years ago, my friend John urged me to invest regularly. I should have listened. 

Historically investors face headwinds but a big threat to not reaching your goals is the face in the mirror. Kristofferson says you have to beat the devil or at least steal his song.  Keep your emotions in check.

You could certainly mine the data and find a mutual fund with a better record; in the real world, you don’t get that opportunity. Scant evidence exists that past performance by actively managed mutual funds are consistent. The best way to reach your goals is to use broad market index funds. 

I’d like to thank Jane Burns for her help and for supporting Back To Nature. For more information visit www.southwaltoncc.org or like South Walton Community Council on Facebook.

Buz Livingston, CFP offers hourly financial planning and fee-only investment management to clients along Florida’s Emerald Coast. He can be reached at 267-1068, Buz@LivingstonFinancial.netor www.LivingstonFinancial.net.