Inside various financial forums, I am seeing the “anyone else worried?” 😓 posts as most portfolios are down double-digits. For a retiree with a $1 million portfolio, seeing $100,000 or $200,000 of value evaporate is understandably stressful. However, much of this is because you are comparing to your portfolio’s all-time high, or high-water mark, which is a relatively arbitrary number. Just because at one moment in time, there were a few willing buyers of your assets for a given price doesn’t mean you should anchor yourself to that number.

Step back and have some perspective. I would offer up this historical performance chart of the Vanguard Target Retirement 2050 Fund (VFIFX) as evidence that things really aren’t that bad if you take a step back. This chart tracks the growth of a $10,000 investment place in 2012 in this all-in-one Target Date Fund. Taken 5/30/22.

  • As of 5/30/22, the 10-year trailing return for VFIFX is 10.28% annualized even after the recent drop. Can you reasonably ask for more than 10% average annual returns for a decade?
  • If you invested in January 2020, right before the COVID pandemic started, you are still up 18.7% if you held through today.
  • If you invested funds anytime between January and August 2020, those funds are up even more than that!
  • The last time your investment value was this low was… March 2021. That’s it.

Things might get much worse, things might get better and never look back, I don’t know the future. This is another reason why I no longer check my portfolio balance on a daily basis. How can I say that, when his whole blog was once based on the idea that I would share my net worth every month?! Back then my savings rate was much more significant than my portfolio performance. Side hustle money made a big difference and I felt in control. These days, the opposite is true. The portfolio movement overwhelms our savings contributions.

Track something better. If you keep staring at that portfolio balance, you’ll get overly excited when you hit an arbitrary number like $50,000 and then get really depressed if it drops below and stays there for a while. You need to track something better. If you are still in the accumulation phase, your metric for success could be:

  • Your 401(k) contribution rate. A reasonable target might be 15% or higher.
  • Your overall savings rate. Heck, if you are tracking this number at all, you are probably way ahead of the game.
  • Your side hustle monthly total. If your day job has a fixed salary, you might focus on the side income instead.
  • Your portfolio’s 2-year trailing average or similar. Anything that has a longer time horizon and offers more perspective.

If you are in the spending phase, you could track something like your spending rate as a percentage of portfolio, and if that’s still reasonable then go back to enjoying your life. You may also explore a dynamic spending strategy.

Bottom line. Your quoted portfolio value in November or December 2021 doesn’t matter. If you tell yourself stuff like “I’ve lost $XX,000” since December 2021, you are experiencing the anchoring cognitive bias.

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Don’t Anchor Yourself To Your Portfolio High-Water Mark from My Money Blog.

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