The psychological effect of watching a portfolio slowly disintegrate


There is something fascinating about writing. When I target a topic, I get so much inspiration that I’m able to write an entire series. This is exactly what happened during the month of February where I wrote about investing and retirement. You can read the actual series here:

  • The Portfolio I Would Build if I Retire Today Part I
  • The Portfolio I Would Build if I Retire Today Part II
  • Top 10 Canadian Stocks for a Retiree’s Portfolio
  • My Top 10 Retirement Stocks
  • I’m Retired, How Do I Withdraw my Money?

What fascinates me is that no matter how much time I spend thinking of my topic and twisting it one way or another, there is always something else to write about. As I was about to tweet about my achievement of the day (which was being able to build an Orc Army….hahhaha!), a reader reached out to me with a more serious matter:

You are right, John. We don’t talk enough about the psychological effect of seeing your portfolio dying slowly. The whole industry is about to save, invest and manage your portfolio for retirement. Funny enough, there isn’t much literature about what happens next.

How does it feel to look at your melting portfolio?

I know, some of you were much disciplined investors with the ability to build a nest egg so strong that you can live off your dividend and not touch your capital. This is quite an achievement that most investors will not reach. I know for a fact that I won’t make it to this point, because I would  rather rent a vacation property for a week during spring break with my family, going to Guatemala with my wife and exploring the maritime with my RV next summer. Oh, did I tell you I’m going to Vietnam for 2 months in early 2019? Yeah, that’s why I will build a big portfolio, but not big enough to support my lifestyle with dividend payment only.

When I look at my portfolio on a bad year and I see that I’m losing money on paper, I always feel a small sting in my spine. But it doesn’t last long as I know that my portfolio is well built and that my dividend will continue to grow. However, I remember discussing the real meltdown problem with my clients.

The moment you stop making money, you stop saving. Then, you are forced to withdraw from your portfolio. This is the point of no return. Each month, your portfolio drops a little. It’s like there was a small hole in your wine bottle and you don’t get to drink it all as the wine is leaking slowly on the other side. You feel helpless because there is no way you can put money back in. You have worked your whole life very hard to see your greatest financial achievement reaching sunset as you grow older.

It gets worst when you hit a market correction. Then, you really feel like the boat is leaking from everywhere. How can you master your emotions and enjoy your retirement when your money is running away from you?

There is one thing I’ve learned about fear

During my 1 year RV trip in Central America, I had multiple opportunities to master my fears. This is how I realized that fear is very powerful, but happens only in a single place; your mind. The emotion of fear is fueled by the unknown. Since our brain can’t figure out what is coming next, it tells you it must be bad. What if this… what if that…and so on.

When you start withdrawing from your portfolio, you don’t know exactly what’s coming up next. You see the value of your portfolio going down, you see the market pushing it further and then you think you are going to go broke. You have been conditioned your whole life to save and accumulate. For the first time, you have to learn the other way around: spend and withdraw.

You will fear your portfolio drops too fast. You will fear that you won’t have enough. You will fear to be force to sell your house. You will fear to live in a small apartment and die poor as you worked so hard for that retirement.

Do you really have to fear? How can you continue to sleep well at night? The only thing that will put the fear back in its cage is knowledge. If you know, you won’t fear anymore.

The most boring financial advice ever

Do you know how I saved my clients from their worst nightmare? I did it with the most boring financial advice ever: I wrote down a retirement plan for them and we reviewed it yearly. The only way you will not panic about how much you withdraw each month, is by knowing you can safely do it. The financial plan retirement is crucial. It’s your roadmap to a good night’s sleep. A good plan will show you the evolution of your portfolio. It will show you that it’s completely normal to see the overall value going down and that your portfolio will outlive you.

While you review it each year, you will avoid bad surprises. You will remain in control and adjust accordingly. I will tell you no lie; it is incredibly boring to go through all those pages of graphics and explanation with your financial planner. It’s like watching a documentary about the history of motor engineering; it’s filled with numbers and geeky expression. Still, this is what’s going to help you sleep at night.

Still panicking?

If the financial plan isn’t enough and you still feel uncomfortable about your portfolio melting, there are a few things you can do. Getting a side job to earn a few bucks a month could help you feel financially more stable. It is only normal to feel lost when your whole life you worked and earned money. Therefore, if you can find a side gig, you will definitely feel better withdrawing from your portfolio.

You can also fix goals. For example, how about trying to on a smaller budget than what’s written in your plan and start saving a part of your withdrawal in an “emergency account”. I’ve seen many clients starting to save a few hundred dollars per month just to keep the habit of saving alive.

In the end, I would suggest you discuss this matter with your friends. Chances are you are living the same thing as them. Money is taboo and often leaves you with a feeling of loneliness. Break the cycle and you will discover that you are not in such a bad situation after all!

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