With the continued volatility, I wanted to ensure we keep some things in perspective with the following points.
1. Having a down year is completely normal. It’s been a while and we may have forgotten what it is like to have a good sell off. Every time the market goes down, there is always a “really good reason”. They say “this time is different”, except it never is. The media spreads fear. It is important to note that the media’s job is not to help you invest wisely, it is to get you to tune in! If you are concerned or fearful, it’s because you are watching/reading the media. I call it financial pornography. It’s addictive and destructive. Shun it like the plague.
2. We are diversified for a reason. Remember, there is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. We don’t put a bunch of money in bonds because we expect the market to go up forever. We do it because we know there will be times when the market goes down, like it is now. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price. Significant sell offs (much worse than we have had) may provide opportunities to buy high quality stocks at low prices. Our strategy is to use bonds to provide the cash necessary to do so. When we buy high quality stocks at low prices, we have the potential to earn much larger returns over time.
3. As with many investors, your lifestyle is not dependent on the stock market. Our strategy is set up to weather the storms and help us take advantage of others’ fear for your ultimate financial gain. Your current lifestyle is completely unaffected by the volatility…unless you are listening to the media and/or looking at account statements. Don’t allow your mood to be influenced by fluctuations in stock prices. As your advisor, I am aware of what is going on. I see the facts, but I don’t watch the news. We are emotional beings – none of us is exempt of that, myself included. The best thing to do during difficult times is to trust your plan, understand the recent moves don’t change your lifestyle and tune it out.
4. Depending on the client’s circumstances, the next move may be to BUY, not sell. If we get a greater downturn from here, we will consider a buying strategy where appropriate. If your investment strategy is to buy low and sell high, then buying is the next move. If you would prefer to sell if things get worse, then your investment strategy is to “sell low and buy high”. While selling may be emotionally desirable in the short-term, it may have significant costs in the long term.
I hope you have a wonderful holiday season.