How Arnold Palmer and Yo-Yos Can Help Your Finances
![](https://money.com/wp-content/uploads/2014/10/141029_adv_palmer.jpg?quality=60&w=320)
One of my newer clients, concerned about the latest stock market drop, called me earlier this month. After catching up briefly, she began describing the unsettling nature of the market volatility she was hearing on the news. She was feeling fearful about losing more of her nest egg, since she's in her mid-60s, has recently retired, and wouldn't be able to make the money back up by working.
No doubt many other financial advisers have received calls like this in recent weeks.
I responded by validating her thoughts, since our emotions play dirty tricks on us when investing. We all want to sell when fear is strong and buy when things have been hot.
We next spent some time discussing her longer-term financial plan and the idea that when stock prices fall we are then positioned for better future returns going forward.
It was at this point that the conversation went off on a tangent. Earlier this year, while planning for her retirement, we budgeted an annual allotment for golf. My client was planning to join a Thursday morning women's golfing group and play at different courses around the region.
When I asked her how that was going, she started to gush about the experience she had at the U.S. Open golf tournament over the summer in Pinehurst, N.C. One of her friends had received corporate hospitality tickets, so they were able to access the clubhouse. While having a drink on the patio, she spotted her childhood idol, Arnold Palmer. She immediately walked up to him and asked for a picture, to which he agreed. While chuckling she said, “It took everything I had not to lay one on his cheek during the picture.” She said she hadn’t felt that much like a schoolgirl, since, well, she was a schoolgirl.
By the time she finished, and we had both stopped laughing, she took a breath and said, “Now what were we talking about?”
A saying attributed to Milton Berle is, “Laughter is an instant vacation.” It’s true. Laughter temporarily helps to take the focus off of our fear. But a falling stock market is no laughing matter.
It’s easy to get swept up in the fear that comes from stock market drops, especially after a five-and-a-half year period of gains. In the moment, the fear takes over, making us feel like we should do something to stop our cascading portfolio values.
The key to successfully overcoming this fear is to have expectations aligned before the drop happens. To help our clients truly internalize this concept, we walk through a set of steps to help them digest what a loss may feel like.
- We begin with a look at the wide range of historical stock return outcomes possible over a one-year period compared to a 10-year period. This helps the client to see the random nature of one-year results and the increasing probability of higher returns for longer-term periods. We often compare it to a person walking up a set of stairs while using a yo-yo. The yo-yo will move up and down with each step but ultimately will make it to the top of the stairs.
- Reviewing the client’s multi-year plan also calms the urgency to sell when stock prices dip. Because as prices fall, future return assumptions increase. Focusing on hitting income and spending targets, which the client can control, shifts the focus away from the fear. Circling back to important goals or memories the client mentioned when establishing the plan adds perspective and serves as a reminder of why a plan was created in the first place.
- Running hypothetical examples of a loss in dollars, not percentages, helps to lessen the shock value when it actually becomes reality. Instead, reminding clients (and ourselves) to associate losses with opportunity in the good times makes us better prepared to make stock purchases when prices have fallen. Additionally, reflecting on historical gains that have occurred after certain percentages of losses can build confidence for when things seem extremely bleak.
We all face uncertainty when dealing with decisions surrounding our money. We also all know that stock market drops are inevitable. Removing the element of surprise allows us to be better equipped when the drops come along. Losses will never feel instinctively good, but seeing opportunity instead of being consumed by anxiety will help.
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Smith is a certified financial planner, partner, and adviser with Financial Symmetry, a fee-only financial planning and invesment management firm in Raleigh, N.C. He enjoys helping people do more things they enjoy. His biggest priority is that of a husband and a dad to the three lovely ladies in his life. He is an active member of NAPFA, FPA and a proud graduate of North Carolina State University.