Many people make commitments to their physical well-being through commitments to diet and exercise.  However, I was recently reading an article where only 18% of people with a gym membership actually use it.  The statistics on the number of people that fail to stick to their diet for the long-term are staggering, not to mention the people who have amazing results over a 3- to 6-week time period, only to gain it all back (and then some) once the diet is over.  It made me think about the similarities with making a long-term commitment to Financial Fitness.  How many people do you know that talk about meeting with a financial advisor to put a long-term plan in place, but fail to either make that first important step or follow through on the advice from their wealth manager?  There are actually a lot of similarities between Financial Fitness (sticking to a long-term plan focused on your financial goals) and a physical fitness plan.  Both get the m ost effective results by putting a plan in place that is comfortable for you and will work over time.  Even then, there may be a time where we “fall off the wagon” with a relaxed diet on vacation, not working out due to illness, or fall victim to all of the headlines by making a market timing investment decision. Fortunately a good plan can weather those short-term bumps in the road. At Flourish Wealth Management, we are committed to working with our clients so we can develop a long-term financial plan that meets their goals, is comfortable for their day-to-day life, and then connect on a periodic basis for check-ins so we can stay on track or make adjustments in the plan as necessary.  Our colleague at the BAM Alliance, Manisha Thakor, Director of Wealth Strategies for Women recently shared why working out is like investing in the markets in the Wall Street Journal.

By Manisha Thakor, Director of Wealth Strategies for Women for the BAM Alliance. This article originally appeared in The Wall Street Journal on February 29, 2016.

“To get to the magic part of the climb, it’s going to hurt. That’s normal. Your legs should be feeling pain right now. Just keep going.” So said my Revocycle instructor during a recent freewheel spinning class. My legs were indeed burning. But I didn’t change tactics or give up; I just kept pedaling steadily. And then the rainbow emerged–you know, that euphoric feeling when your endorphins kick in and you feel you could smoothly and comfortably ride forever.

How does this relate to the health of your investment portfolio? More directly than you might think.

By mid-February, when markets were hitting year-to-date lows, many investors found themselves extremely agitated about the state of their portfolio balance. If you have any exposure to stocks, then you likely know all too well the feeling to which I’m referring.

I think the root problem most investors are experiencing with the volatile markets of early 2016 is that they are mentally–and perhaps also logistically–unprepared for the inevitable hills that come with investing. But it is, after all, the very existence of market downturns that enable stocks to produce meaningfully higher returns than bonds over the long run. The potential for large negative outcomes is precisely why investors demand a premium (which academics call the “equity risk premium”) in the form of higher expected returns for taking on the risk associated with equities.

Were this not the case, stocks would trade at a much higher average price/earnings ratio (resulting in the same returns that could be earned on safe bonds) rather than their actual long-run average price/earnings ratio of close to 16. In other words, the kind of volatility we are seeing in stocks allows them to produce higher long-run returns than bonds.

So, why do we have such a hard time dealing mentally with market corrections?

The first reason is that investors are often sold a lie. They’re told active management can prevent them from experiencing declines in the market. I’ve also heard investors say that an index-oriented, evidenced-based approach can’t protect them during downturns. The truth is, with the exception of sheer, random luck, that active investing can’t protect you either.

If you are investing with an adviser who is telling you they can consistently safeguard you from market downturns with “strategic market timing”–while still holding equities and hard assets–you are in for disappointment. That’s like a fitness instructor telling you that you can meaningfully increase your cardiovascular fitness and muscle strength without ever experiencing any physical discomfort. It’s the discomfort that creates the fitness.

The second reason is that investors sometimes lack reasonable expectations regarding the pain they will eventually feel if they are invested in the markets. My colleagues at Buckingham and the BAM Alliance, Larry Swedroe and Dan Campbell, recently crunched S&P 500 data over the 90-year period from 1926 through 2015 and noted the following:

• There were 34 years (38%) in which the S&P 500 produced negative returns in January. In 20 of the years (59%) the index produced a positive return over the remaining 11 months, with the average return being 7%.
• The five best 11-month periods following a negative January were 1935 (54%), 1928 (44.2%), 1927 (40.2%), 2009 (38.1%) and 2003 (32.2%
• The three most recent years with a negative January produced the following full-year returns: 2010 (19.4%), 2014 (17.8%) and 2015 (4.5%).

This is not to say a lousy start to the year is always followed by joy. There have been a number of years in which a poor January was followed by an equally unpleasant next 11 months. The five worst periods were 2008 (-33%), 1974 (-25.8%), 2002 (-20.9%), 1973 (-13.3%) and 1969 (-7.9%).

All these numbers are the financial equivalent of hearing your spinning instructor let you know that you are about to go into a rough patch (up the proverbial hill) and that’s OK. There is a purpose to it, and you will feel different on the other side.

Where investors really get themselves into trouble is when they combine mental unpreparedness with logistical unpreparedness. For example, they’ve invested money in the stock market that they actually need to spend in the near term. When you are forced, because of logistics, to liquidate assets in a down market, perhaps temporary damage becomes permanent. A well-thought-out investment plan will already have taken into account the fact that financial hills occur.

Should the market choppiness of early 2016 continue, you’ll likely feel pain if you are invested in equities. This is normal. But, if you your asset allocation is based on the right financial plan for your circumstances, you will be in good shape logistically because you didn’t take more risk than your stomach (or legs) could handle. You won’t ruin your financial ride by you hopping of the bike mid-hill because you just couldn’t take it anymore. Now all you need is the mental fortitude to keep on going through the climb.