A few days from now a total solar eclipse will work its way from Texas to Maine.1 When you think of it, this eclipse serves as an excellent reminder of certain aspects of financial planning. Some have to do with thinking in longer time periods. Others have to do with ignoring rare, short-term attractions that everyone else seems to find irresistible—but can be quite dangerous.
Understanding Eclipses
A total solar eclipse occurs when the moon passes between the Earth and the sun, completely blocking the sun’s light for what always seems to last longer than it actually does. After this 2024 eclipse, the next total solar eclipse visible in the United States won’t occur until August 12, 2045.2 If you manage to view this current eclipse—wearing those safe but unfashionable eclipse glasses, of course—you may be inspired to go to Iceland or Spain for the next one, appearing on August 12, 2026.3
There’s a reason total eclipses are rare. Even if all the planets don’t need to align, the earth, moon, and sun actually do. And even then, it’s still mostly about your perspective, or where you happen to be at the time. This is one similarity to investing and financial planning. Larger market forces and the performance of publicly traded companies are beyond your control as an investor, but your decisions will always have the biggest impact on whether you make the most of what’s happening in the world.
Predicting Eclipses: Easier Than Timing Markets
Much like the predictable path of an eclipse, certain aspects of our financial lives are within our understanding. Long-term planning, regular savings, and prudent investments are the building blocks of a secure financial future, ensuring that we’re prepared for both expected and unexpected events. Trying to time the markets is, however, a misguided and predictably futile attempt to maximize returns.
An individual investor should expect better results from trying to reschedule the next eclipse than from betting on short-term stock or market swings. Long-term investors understand that markets are volatile from day to day and sometimes month to month, but not over the span of years.
Bear Market Darkness
A bear market, characterized by falling stock prices and pessimism, can feel like the total darkness of an eclipse. The term “doom and gloom” often accompanies talk of bear markets. But just as the darkness of an eclipse is temporary, bear markets are typically followed by recovery and growth. By maintaining a long-term perspective and not reacting impulsively to market downturns, investors can weather these storms and emerge stronger on the other side.
Long-term investing requires people to be adaptable, resilient, and prepared. Having a strong position of cash savings and a carefully managed portfolio helps navigate through these periods of uncertainty without taking focus off the overall goals of, for example, retirement planning.
Don't Stare at Shiny Objects
Just as special glasses are needed to safely view an eclipse,4 wise financial planning helps us avoid the dangers of speculative investments. The allure of quick gains from day trading or trendy investments—sometimes referred to as “shiny objects”—can be as tempting as looking directly at an eclipse without protection. However, a well-thought-out investment plan acts as a safeguard, guiding us towards steady, long-term growth and away from the fleeting dazzle of high-risk ventures.
The Takeaway
The experience of a total solar eclipse has been described by many as awe-inspiring. Whether or not you’re in the path of this eclipse, let it serve as a reminder to embrace the journey of financial planning with preparation and positivity. By planning for both the predictable and the unexpected, you can be confident that you’re prepared for whatever lies ahead. And just as wearing safety glasses is essential to experiencing an eclipse, always consider the benefits of working with your financial advisor as you manage your family’s wealth.
Sources:
1 https://science.nasa.gov/eclipses/future-eclipses/eclipse-2024/
2 https://en.wikipedia.org/wiki/List_of_solar_eclipses_visible_from_the_United_States
3 https://en.wikipedia.org/wiki/List_of_solar_eclipses_in_the_21st_century
4 https://science.nasa.gov/eclipses/future-eclipses/eclipse-2024/safety/
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