Aside from outbound calls, our phone is really quiet. We’ve fielded exactly 2 emails with a little concern about the markets over the past 2 weeks, but a number of messages looking to capitalize upon the current downturn. We also understand many of you watch our videos and we truly appreciate that you seek out and embrace our team’s advice. Oh, and occasionally, you even seem to read our communications :-)
If you’ve been living under a rock in 2022, markets are down a bit. That’s not news. Russia, Ukraine, China, Oil, Diesel Fuel, Interest rates… ok. We know you get it. But what if we’re still feeling edgy about account fluctuations? Knowing that we as humans are both emotional and logical, we’re going to re-emphasize using logic when it comes to investing:
1.) Remove emotion through a question or two of self-reflection.
- Has there been a material change in my financial facts or future goals?
- If yes - - have I communicated this to my Advisory Team?
- If no - - really consider just staying the course and ride this out. It’s an election year… chaos creates votes.
- No, but I also want to capitalize upon this downturn = connect with your Advisory Team.
- No, but the news has me really concerned = let’s stop watching bad news… chaos also sells advertising.
2.) Frame it. There have been many historical downturns in the markets, the majority of which are probably long-since forgotten. While investing always involves risk, in general, most investors emerge financially stronger by staying the course. For example, and since 1980, we’ve experienced intra-year declines of greater than 15% on the S&P 500 quite a few times (1980, ’81, ’82, ’83, ’90, ’98, ’00, ’01, ’02, ’08, ’09, ’10, ’11, ’18, ’20) - - and we historically recovered to reach new market highs. Every. Single. Time.
3.) Embrace the downturn as an opportunity. Market movement, whether viewed simply as volatility, a correction, a recession or an event-triggered downturn… these market movements in general can create new opportunities for investors. Your portfolio managers are working on your behalf to look for such opportunities in the market which align with prospectus objectives and trends. Let’s give them the autonomy and time to do their work.
4.) Capture it. Some studies support Americans holding historically high levels of cash right now. Is this a result of a recent run-up of housing prices? Possibly… But we all understand that cash in the bank loses out to high inflationary pressures; this could be a great time to acquire investment shares while market prices are down. You might consider making a lump-sum deposit or choose to do a dollar-cost-average ACH monthly deposit over a fixed period of time.
5.) Resist the urge to change something… just for the sake of changing something. Humans are emotional creatures who sometimes allow logic to become overshadowed by feelings of concern or frustration. Changing anything can feel good when we feel pain, but making any change does not make it right.
6.) Revisit %’s vs. $’s… Consider that as young investors with smaller balances, we often focus on percentages when trying to understand and evaluate account performance. As we age and our investment portfolios grow, psychologically some investors can lose sight of their percentages and focus instead back upon their dollars (i.e., monetary value gained or diminished). All investors should understand %’s with a growing account balance:
For example: a 15% fluctuation… $10 = $1.50 (who cares!)
$100 = $15 (meh.)
$1,000 = $150 (justified as only a tank of gas in an SUV)
$10,000 = $1500 (hmmmm. what happened here?)
$100,000 = $15,000 (ouch.)
$1,000,000 = $150,000 (ok, I’m now concerned)
$10,000,000 = $1,500,000 (whatever. I still have $8.5M. It’s all part of the game)
For additional context and explaining away my sarcasm, most of us would feel good with a $15,000 gain, but an emotional feeling of scarcity might trigger if we saw a $150,000 or $1.5M downward fluctuation… C’MON - - THAT’S REAL MONEY!
To the point, we’ve been here before and we’ll probably find ourselves here again many times. The real news that matters is that your portfolio should be aligned with your time horizon, risk tolerance and goals as part of your overall financial plan. But if for some reason it’s not, please call us and let’s have that conversation.
As an independent practice, we have a great degree of flexibility and the latitude to help tailor your portfolio to your specific objectives, including allocating a portion of your portfolio to safe-money investment vehicles when appropriate.
We’re in this together, supporting each other and our local businesses.