Welcome, Future Early Retirees.

Watching your investments go up in value is a thrilling experience. You feel like you are doing the right things to achieve your financial goals and all is well. But what about when the market takes a downturn and your investments decrease in value? It can be hard to watch and have you questioning why you choose to invest your money. This is the rollercoaster of investing.

In today’s newsletter:

• Recognize the influence of emotions

• Develop a long-term perspective

• Avoid a herd mentality

• Things I found interesting

• Financial Tools

Recognize the influence of emotions

Overview: Emotions significantly influence investment decisions, often leading to outcomes that may not align with long-term financial goals. Recognize and acknowledge emotions through self-reflection and questioning. Developing emotional intelligence in financial matters allows you to adopt a more disciplined and rational approach, leading to better long-term outcomes and improved ability to achieve financial goals despite market fluctuations.

The details: Emotions can play a significant role in shaping our investment decisions, often leading to outcomes that may not align with our long-term financial goals. The complex interplay between our feelings and financial choices can have significant effects on our investment success. Greed, fear, and impatience drive investors to make irrational choices, potentially resulting in poor outcomes and missed opportunities.

I try offset any emotions I have by asking myself why am I making a investment decision. Is it just because the value changed suddenly, or is did something fundamental about the investment change.

The value of your investments will change for a variety of reasons. Sometimes it has nothing to do with the investment itself and will be entirely based on external factors such was the Federal Reserve changing interest rates. I try to focus on what my investments can control.

Lets use my investment in $TSLA as an example. The stock would go down a lot if the Federal Reserve announced an increase in interest rates since that would make it harder to finance a car purchase. I wouldn’t change my thinking on how I want to buy or sell the stock because I believe the long-term value will be created through self-driving cars and robots. If something were to happen where I no longer believed they were going to be able to achieve these things, I would sell the stock tomorrow.

Take the time to reflect on your emotions and consider how they might be influencing your choices. Ask yourself questions like:

• Am I making this decision based on careful analysis or a gut feeling?

• Is my current emotional state affecting my risk tolerance?

• Am I reacting to short-term market movements rather than focusing on my long-term goals?

By acknowledging the role of emotions in your investment decisions and actively working to manage them, you can develop a more disciplined and rational approach to investing. This emotional intelligence in financial matters leads to better long-term outcomes and help you stay on track to achieve your financial goals, even in the face of market volatility and uncertainty.

Develop a long-term perspective

Overview: Investing requires a long-term perspective, as short-term market fluctuations are common and should not cause undue concern. Successful investors view market downturns as opportunities to buy assets at discounted prices, similar to a sale. Developing clear long-term financial goals, such as achieving financial independence or saving for major life expenses, helps maintain focus and prevent impulsive decisions based on temporary market volatility.

The details: I’m going to assume you don’t like losing money like most people. If you are investing, there are going to be many days where the value goes down. You have to be able to zoom out from how your investments have performed this week and see how they have performed over the past 5, 10 or even 50 years. Now you can relax as those one to two bad days are like drops in a bucket compared to how the investment has performed overall.

Investing is a long-term game. Understanding the cyclical nature of markets and having a well-defined investment strategy will help you stay grounded during market volatility. Remind yourself that temporary market downturns are often followed by recoveries.

I like to think of these downturns as a black Friday type of deal. You are getting something that normally costs $100 for $70! Except in this case, everyone is running away from the sale. The people who want be financially free run towards these opportunity. If you want some examples, Bill Ackman talked about some of his best investing decisions in his interview with Lex Friedman.

How do you develop long-term goals?

At the end of the day what you want? Financial independence, a down payment on a house, to pay for your children's education? Visualize the long-term benefits of your investments and set up your investing portfolio based on your timeline. By keeping your focus on these goals, you can maintain a sense of purpose and resist impulsive decisions driven by short-term fluctuations.

Avoid a herd mentality

Overview: The fear of missing out (FOMO) leads to making impulsive decisions based on emotions rather than sound analysis, as seen during events like the GameStop stock frenzy. Avoid FOMO-driven mistakes by conducting thorough research and make informed choices based on your own analysis and risk tolerance. Whether investing in index funds or individual companies, understanding what you are investing in and the potential risks gives you confidence in your investment thesis and empowers you to make your own investing decisions.

The details: The fear of missing out (FOMO) or the urge to follow the crowd can lead to impulsive investment decisions. For instance, during the GameStop stock frenzy, many investors jumped in without fully understanding the risks, driven by social media hype and FOMO.

Conduct your own research and make informed choices based on your own analysis and risk tolerance.

Index Funds/ETFs

Even if you want to keep investing as simple as possible and just invest in the S&P 500 or some other funds, I encourage you to know what is it made up of and understand how it has performed over the years.

Individual Companies

If you consider investing in an individual company, you should learn as much as possible about what they do and who is on the management team to develop a reasonable thesis on why you think the company will continue to increase in value. Make sure you also think about counterarguments and ensure that you can confidently debunk them. When looking at individual companies, I like to find interviews with the CEO and look at the financial statements to see if fundamentals are strong and improving (i.e. revenue growth, profitable or soon to be, limited debt). Additionally, I have to be able to explain to others what the company does. If I don’t feel good about any of these, I don’t invest.

Not knowing what you are putting your money into creates a disaster of a situation. Instead of chasing the latest investment trend or acting based on market rumors, take a step back and evaluate the situation objectively. Consider the fundamentals of the investment, its potential risks and rewards, and how it aligns with your overall investment strategy.

Things I Found Interesting

• Small caps are the hottest trade going in the stock market now as Federal Reserve could cut interest rates soon

• Dividend Growth Can Replace Your Job

• New York City paid $4M to conduct a feasibility study on whether trash bins are better than leaving garbage on the street

• 3 money moves to make ahead of the Federal Reserve’s first rate cut in years

• Elon Musk said Tesla moved robotaxi event 'for important design change'

Share Money Bags 💰

Share this newsletter with your friends, family, and people you want to impress 😉

5 REFERRALS = A FREE MONEY BAGS 💰 T-SHIRT

Personal Finance Tools

Get access to a variety of personal finance tools to help you retire early for FREE 💰

Feedback