If you watch any sort of news outlet tonight, you will undoubtedly see some story about a market drop with a headline that reads: “The Dow down 1000 points!” (Or some deliberately scary iteration thereof).
When the market opened this morning the Dow initially dropped 1089 points. An hour later, it had already rebounded and it was only off 300 points. In percentage terms it dropped nearly 7% and then an hour later was down 1.8%.
The Retirement Planning Group has Clients all over the United States…from the East Coast to the West Coast. When the markets opened at 9:30 EST, and the Dow fell 1000+ points, our Clients on the East Coast were probably on their second cup of coffee. If they were paying attention they might have seen this occurring and been inclined to “make a change” in their portfolio. Meanwhile, our Clients on the West Coast were hitting their snooze bar for the second time – back to never-never land and fairy dust.
It is here where we’d like to focus on what our Clients on the West Coast were experiencing at 6:30am PST. They were asleep, worried about getting to work on time, getting the kiddos off to school, or wishing it wasn’t Monday already! What they weren’t worried about is a drop in the market – as they weren’t consumed, focused or overly engaged with the minute by minute movements.
There is a very valuable lesson to be learned here.
Focusing on or obsessing about short term volatility in the market will absolutely affect your overall performance and could lead you to make the worst possible decision at the worst possible moment. This is one of the many reasons you’ve hired us: to eliminate the worry of managing your portfolio by yourself and to guide you and your accounts for years to come. You are running a marathon, and we are here to help make sure you cross the finish line.
It’s easy to get distracted by the markets as they change minute-by-minute, hour-by-hour, day-by-day, week-by-week, month-by-month, quarter-by-quarter and even year-by-year. We want to help you stay on track. Times like this allow those Clients still saving for retirement to invest into the same investments that they bought last month – at a discount. For our retired Clients, it means we can rebalance for you and buy a few more shares – at a discount. That should be music to your ears!
A few important things we need to remember!
There is no free lunch: The reason we expect higher long-term returns on stocks than on cash and bonds is because they have greater volatility. There is no free lunch in the financial markets, and we have to accept volatility in times like this in order to earn the expected higher long-term returns. The Retirement Planning Group takes a strategic, long-term view on asset allocation and your portfolio is invested in a model based on your timeline until retirement.
Market timing does not work: Market timing is the holy grail of investing. If one could do it consistently, the rewards would be great. But investors who attempt it typically end up with sub-par performance due to the extreme difficulty of timing things just right. Despite much attention in the media to being tactical (i.e. market timing), we are not aware of investors who have consistently timed the markets with success. The good news is that one does not need a crystal ball to invest with success. The higher returns associated with investing in stocks are there for anyone who remains disciplined through both good and bad times.
The importance of diversification: One of the important lessons we learned from the 2008 financial crisis is that diversification works. While this may not be obvious on a day-to-day basis, a mix of different types of assets provides a smoother and more stable ride for your portfolio. As an example, while stocks have performed poorly in the past few weeks, most of our bond and alternative funds have provided positive returns. The time frame is extremely short, and no one knows how the funds will perform in the next few weeks or months, but it is another testament to the benefits of diversification.
As your financial fiduciaries, we care deeply about your financial well-being, and it is in times like these we stress how important it is to stay calm and refrain from making decisions that may be detrimental to your wealth. Our West Coast Clients didn’t have a chance to get caught up in the hysteria of the moment. Take this a step further, what if you never turned on the news? How much better off would you be?
If you have any questions or comments please contact your advisor by calling us or clicking their picture below.
The Retirement Planning Group
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