One of my earliest financial planning lessons was on the concept of cost averaging. The idea is that you automatically invest a fixed amount each month into your mutual funds or stocks. When the stock market is climbing, then you’ll watch your stock value grow. It’s the quintessential buy low, sell high. A great idea!
When the stock market is falling, it’s still a great idea to buy because now you’re getting more shares for the money. Your number of stocks will grow. When the stock market climbs later, you’ll have even more stocks to take advantage of that growth. Another great idea! In other words, whether stocks are rising or falling, you’re doing the right thing by continuing to invest every month. Even better, you can just set it up and forget about it.
However, for this model to work, you have to have the stomach to stay in the game when the market falls. I know some who have a hard time with this approach because they can only see the downside of the falling market. Their tendency will be to sell, not invest, when the market is falling, i.e., buy high, sell low. Not a strategic financial management plan.
What does this have to do with well being? The cost averaging analogy applies to the ups and downs in our lives, the good times and the bad. When times are good, you can just sit back and enjoy the ride, savoring the experiences and positive emotion. When times are tough, like the market, there are really good opportunities if we can see the opportunity. During tough times, we have an opportunity to learn important life lessons, make critical changes, and foster our personal growth. People rarely make needed changes when times are good. Change and self-investment occurs when we’re uncomfortable or miserable, not so much when we’re feeling joyful or at peace.
Thus, when bad times hit, it’s a golden opportunity to learn and grow. When good times return, we have created additional internal resources, and we can enjoy those good times all the more, especially since they were hard-earned. The trick is, we have to see the opportunity hidden in the tough times and invest in ourselves. Otherwise, we may do the psychological equivalent of buy high, sell low.
So you see, there really is no such thing as “good” or “bad,” it all just depends on your perspective. Pessismists will view the downside of even a growing stock market and optimists will see the upside of the falling stock market. How will you see the ups and downs in your life? Remember, your perspective is a choice.