In the long journey towards financial independence, life sometimes happens. When it does, you’re going to need to adjust, deal with the challenges and refocus. If there’s one thing that’s guaranteed in life, at some point, at least, it’s going to be a rocky ride. I’ve never met anyone who has sailed through life facing no significant challenges.
Some have to deal with more than others, but we ALL will experience tribulation of some kind in our personal and our financial journey. If we know that upfront, we can roll with the punches and even try to make the best of them, using them to make real progress and learn valuable lessons.
Everything You Need to KNOW
1. Adversity is a Teacher
Adversity of any kind is no fun in the moment, obviously. But once the initial difficulty has eased, it might be easier to take stock of what’s going on and try to look at things a bit more objectively. As we do so, we can learn valuable lessons.
I was advising clients during the financial crisis of 2007-2009, and investors had a pretty torrid time. All my clients were multi-asset investors, of course, and they got off fairly lightly. While markets were down 40%, the worst client I ever saw was down about 12% in the time window of the review.
Looking back now, those clients can see that even the worst financial crisis in living memory was short-term. They held their nerve and they rode it out. When the next prolonged market decline comes, and it surely will, they’ll be ready. They’ve learned the lesson that declines are temporary but the advance is permanent.
In adversity, we learn how the world works and how we work. These are powerful lessons on our journey of building wealth. I’ve occasionally had conversations with clients about some of the things they said at the time, in the midst of the difficulty.
I remember how they reacted to news events, even some specific news headlines in certain papers, and how they felt at the time. Self-awareness is a superpower, and it is learned most acutely in times of difficulty.
2. Nothing has the Power to Completely Derail Your Progress
We’re talking largely about events happening to us here, rather than the things we bring on ourselves. But even so, it’s a fact that very few things in life have the power to completely derail our plans and our progress. We’d do well to remember this, and maybe write it down somewhere so we can refer to it when adversity does strike.
Let’s consider some examples: Losing your job will have an impact for sure, but you’re unlikely to remain jobless for too long, though of course that depends on your skill-set and lots of other factors.Losing your income would have an immediate impact on your ability to save and you might have to dip into your emergency fund.
If you do end up not working for a long time, or have to accept lower paid work, then your plans might have to change to some degree, but probably not entirely. You might have to pivot, but you probably won’t run into a brick wall. It won’t be game over, just an adjustment to the course.
What if you make a bad investment and you lose everything? Well, hopefully you didn’t bet the whole farm on it; if you did, then you’re a victim of nothing other than your own foolishness. But you probably didn’t go all-in, so you’ve only lost a proportion of your worth.
You still have your income, so you can replace the lost money. The episode will set you back on your journey to financial independence by a couple of years, but not right back to the start. There is an element of snakes and ladders going on – sometimes we slip back, but we’re still on the journey; just a bit further behind than we might like.
It’s rare that an event will arise where we are completely derailed by it. Even death need not be the end of the line for your financial plans. Obviously if it’s your own death, then that’s it for you, but the plans you have made for your family or for your legacy can continue.
3. Programming is Underrated
Part of being prepared to deal with tricky challenges is to be prepared. Don’t underestimate the significant impact of good information on this whole process. There’s a reason why things are easier to remember when we repeat them – repetition is a sure-fire way to embed things in our brains.
Consider it programming for our biological computers. Learning isn’t just about knowledge but about behaviour change, and as we know by now, behaviour is a key factor in our journey towards financial independence.
Let’s commit to positive programming by a process of continual learning, including repetition of positive mantras or affirmations. There’s a reason why I often say that stock market declines are temporary, but the advance is permanent. It isn’t my line (it’s from Nick Murray), but it’s the best one-liner I’ve heard yet that sums up market movements.
Part two in this series is here. If you'd like to reread the end of the series on diversification, it's here.
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