From Pond to Wallet – Retirement Daily on TheStreet: Financial & Retirement Advice, Analysis & More


By Kent Schmidgall, CFP

Summer is over and so is the fishing season (at least in my geographic area), so what better time than now to contemplate the lessons nature teaches? Specifically, what can we learn from those smooth, scaly, and slippery friends in lakes and ponds? In the end, a lot. Every time I go fishing I marvel at the correlation between the pond and the wallet. Stay with me as I share some nature observations and some practical implications they might have for your own financial life.

Kent schmidgall

In pursuit of past performance

I well remember my walleye fishing trip to Canada a few years ago, where the slightest sign of my companions’ fishing success resulted in a flurry of lures and inverted jig colors, not to mention the roar of the motorboats speeding to a new, warmer place. And on an expedition to a local pond several months ago, I heard clamors and splashing across the lake. Fearing to miss the action, I found myself meandering in that general direction, trying not to draw attention to my shortage of fish.

Whether in the Great Lakes or during the Great Recession, chasing after assets that performed well and abandoning those that performed poorly seems natural. However, in the investment world, this is a recipe for disaster (and I have yet to be convinced that this is a foolproof fishing strategy). As a 2021 study by Morningstar found, while the broad category of U.S. equity funds returned 13.2% in the past 10 years, average U.S. equity investors only gained 12% mainly because they tried to outsmart the market but kept going in and out in the wrong place. times.

Seeking performance is not only a bad investment strategy, it can also be a dangerous planning strategy. If you are assuming historical investment returns when developing your financial life plan, you may want to consider reducing the value of your assumed returns. Although the US stock market (as measured by the S&P 500) posted an annualized return of 14.3% over the 10 years ending September 30, 2021, based on current stock valuations, it seems highly unlikely that past returns are a conservative assumption for future returns. . Using an inflated future return assumption could have a big impact on the results of your plan, so you should periodically review and update the capital market assumptions it uses. As a strict example, my company, Buckingham Strategic Wealth, uses a forward expectation of return for the US stock market that is about half the historical rate of return.

Skill or luck?

Perhaps you have been successful in picking the right stocks over the years and maintaining the discipline required to grasp the growth of those stocks. I’ll take my fishing hat off to you. Keep in mind, however, that just like in fishing, it is sometimes difficult to tell skill from luck. This summer, I went on a guided fishing trip on Table Rock Lake. My nephew was very successful from his position in our boat, while I had nothing to show for my efforts. Taking pity on me, the guide recommended that I change places with my nephew. In a startling demonstration of the difference between skill and luck, my nephew continued his success on the other end of the boat, while my unsuccessful struggle persisted. If only it were that easy to distinguish skill from luck in the investment world!

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Time in the water

“Kent, I did some testing and I guarantee you will catch more fish with the line in the water,” said my wiseguy fishing buddy. “It’s about keeping the line in the water,” he said. Likewise, in order to capture market returns, we must remain invested in the market. Just as a long fish drought can be followed by a sudden attack, market returns are often short and unpredictable, and we must stay long enough to take advantage of the returns.

Consider that $ 1,000 hypothetically invested in the S&P 500 in 1980 would have risen to $ 102,274 by the end of 2020. If you remove the best day from the market during this period, the accumulated value drops to $ 91,659; remove the best 15 days and the value drops to $ 34,212. (Please see additional information below.)

Water is never “safe”

Earlier this year I experienced a pleasant surge in productivity on the pond. As quickly as fortune had turned in my general direction, alas, it quickly left. Wanting the excitement to return, I run again. And even. Just one more cast. Eventually I caught a huge problem that caused me to cut the bait and lose a shiny spinning lure. The surface of the water was calm, but the danger lurked below the surface.

No matter how calm and peaceful the stock market may seem on the surface, risk and danger always exists in the depths below. Stocks are always risky and there is never a “safe” time to invest. There will never be a lifeguard who will tell you when it is finally safe to wade through the dark depths of stock investing.

Without this rescuer, the best thing you can do is have a plan, be patient, and when the fish bites, calmly and slowly ascend.

About the author: Kent Schmidgall, CFP®

Kent Schmidgall, CFP®, is a wealth advisor at Buckingham Strategic Wealth. He resides in Southeast Iowa with his wife and three children. Her perfect day includes a steaming cup of coffee, a hot fire, and a Dickensian novel.

Important Disclosure: The opinions expressed by the authors presented are their own and may not accurately reflect those of Buckingham Strategic Wealth®. This article is for general information only and is not intended to serve as specific financial, accounting, legal, or tax advice. Individuals should speak with qualified professionals based on their personal circumstances. The analysis in this article may be based on information from third parties and may become obsolete or otherwise superseded without notice. Information of third parties is believed to be reliable, but its accuracy and completeness cannot be guaranteed. Neither the Securities and Exchange Commission (SEC) nor any other federal or state agency has approved, confirmed the accuracy, or determined the adequacy of this article. IRN-21-2774

Additional information: Indices are not available for direct investment. Their performance does not reflect the expenses associated with managing an actual portfolio and indices do not represent the results of actual trading. Information from sources believed to be reliable, but its accuracy cannot be guaranteed. The performances are historical and do not guarantee the future results. Total return includes reinvestment of dividends and capital gains. Start date chosen due to availability of daily return data.

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Email Jeffrey Levine, CPA / PFS, Director of Planning at Buckingham Wealth Partners, at: [email protected]


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