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Tortured by the numbers? Change your perspective

“You can’t get caught up in the short-term numbers.”

If you have ever spent time with an investment professional, you have probably heard them say just that. You have to keep your eye on the goal. If you need your money for a retirement that is 20 years away, it does no good to worry about your performance over a month or a quarter, or even a year. What matters is that you have what you need in 20 years.
Nevertheless, it is hard not to worry when your portfolio goes down.

We have a natural tendency to count our money at the end of the month, when our statements come out, and we don’t like for it to go down from there. We feel entitled to our “high-water mark.” What makes this tolerable for most investors is that they don’t see the entire value of their portfolio until their statement comes at the end of the month. They may very well keep up with their individual investments daily, but they don’t tend to add up the values to see where the whole portfolio stands until that statement arrives.

The secret to something that has been bothering me for a couple of weeks is in this very practice. It took me a while to figure it out, because I don’t look at my statement very often and rarely look at my clients’ statements. That may sound a bit odd, but remember that I have access to all of the information on our clients’ statements through my computer, and it updates values and other information daily, not monthly.

So, I really have very little use for the hard copy of my statement until tax time when I pull them all out for my CPA.

Back to what’s been bothering me. I have noticed that a large number of client calls have been about the recent drop in the market and how much it has affected their accounts. There is no doubt that the market has given back almost all of the gain we saw in the first quarter, but still we are just about dead even for the year on the major indexes in the United States, the S&P 500 and the Dow Jones Industrial Average. So, I have been a little bit baffled by the level of concern from the investors I have been talking with.

I finally figured it out yesterday when Margaret, a client of ours, came in to go over her statements. She had some questions about the drop in market value from her last statement. Anita, my administrative assistant, was going over the information with her and Anita had put together a chart of the Dow Jones Industrial Average to show Margaret how the market drop had affected her account.

As I looked at the chart, it became obvious to me why this seemed to be a bigger deal to my clients than it seemed to me. It was in the timing of the last two statements.

Most companies send their statements out based on the value of the account on the last day of each month. Normally, the market doesn’t move so much in a day or two to make much of a difference, but I found something interesting when I looked at the value of the Dow Jones Industrial Average on the last day of April and the last day of May. The last day of April the Dow was trading just under 11,500. At the end of May it was just over 11,000.

What’s interesting is that less than two weeks earlier the Dow had been at just over 11,400, so if the May statement had come out two weeks earlier my clients wouldn’t have noticed a drop at all. Between the first week of May and the first week of June, the market topped at 11,670 and dropped to around 10,700. A thousand-point drop sounds bad for investments, but if you just back up a bit and look at the market from the first of the year to now, there has been no drop. A pretty average first half of the year that’s hard to get excited about.

As the old saying goes, “If you torture the numbers long enough, they will tell you anything.”

So, if you are one of those investors who are a bit nervous about what has happened to your investments in the last couple of months, check out the view from a little higher up and you may feel a little better about things.

Contact MBJ contributing columnist Scott Reed, CIMA, CWA, AIF, of Hilliard Lyons, member NYSE & SIPC, in Tupelo at mbj@msbusiness.com. Hilliard Lyons does not offer tax advice. Please consult your tax advisor before making any decision that may affect your tax situation.


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