“God, grant me the serenity to accept the things I cannot change, the courage to change the things I can, and the wisdom to know the difference.”
Reinhold Niebuhr, a prominent theologian of the 20th century wrote these famous words. Today they have significant relevance if we are to endure the market volatility equity investors experienced in August 2011. I am sure many of us have heard the advice of “stick it out,” “stay invested” and “weather the storm.” The reality is investors want to “do something” to feel they have some control over the losses in their portfolio. At this juncture it is very important to know what we can control and what we can’t. We can’t control the markets. We can’t control interest rates. We can’t predict the direction of the market. I am amazed at the number of investors who claim to know how the markets will react and who believe that going to cash will increase long-term performance.
As my father would say, read your history books. Time and time again investors waste considerable time and energy battling market forces they can’t control, all to no avail. Research actually shows individual investors do not perform as well as institutional investors for this very reason. If we can accept this truth, we can then focus on the things we can control. Things like diversifying our portfolio, working with a professional advisor, rebalancing our portfolio, and replacing underperforming investments
Having an emergency fund, not spending more than we make and keeping a portion of our investments in fixed income are also strategies we can control day in and day out to care for our financial health. The more time we spend trying to control things we cannot, the more anxiety will fester. The reward for the wisdom to “know the difference” is ultimately peace and serenity.