Experience
They say if you live long enough, you’ll see just about everything. Enter: Jack Bogle. He is one gentleman who has seen, lived through, and witnessed quite a ride in the stock market. He’s seen the market drop by over 50% two times, including a drop of 25% in a single day. Yet over his past 66-year career (he’s semi-retired), he recently stated that he has never seen anything like the volatility happening in the markets right now (2018).
While you may not know who Jack Bogle is, I’m sure you’ve heard of the company he founded: The Vanguard Group. According to a New York Times report in 2017, The Vanguard Group had more than $4.2 trillion under management. You may find it frightening or even disconcerting that a person coming from one of the largest investment firms in the world and one who has been working in the industry for 66-years made a statement like that.
Tough Skin Needed
Wild market swings have happened since the beginning of the stock market. People speculate, anticipate, and make investment choices based on fundamental and technical indicators. For the first quarter of 2018, the broad US stock market index known as the S&P 500 had 23 trading days with a 1% or greater daily move. According to Nicholas Colas, co-founder of DataTrek Research, the historical average — going back to 1958 — is normally 13 trading days over that same period.
I know all too well how it feels to watch investment valuations move up and down. Managing my clients’ assets is a primary aspect of my job. I also manage my own family’s assets and am plugged into the market all day. I know the feeling of seeing my own investment portfolio down 45 percent or more, and not knowing ‘when’ it would start to trend upwards. I have learned that I cannot control the market direction nor can I control or predict the timing of such. And neither can anybody else.
Discipline
Disciplined investing is a funny thing. Can you imagine paying your financial advisor to tell you to “do nothing?” Would it be the same as a diet coach telling you not eat that donut—in other words, sitting at the table doing nothing for 5-minutes would be better than eating a donut?
Some people make investment choices based on what they hear from the latest new outlets, while others make investment choices based on what their friends think the market is going to do. There are even people who make investment choices based on “seat of the pants” feelings or just because they like or don’t like a company’s name.
What if “doing nothing” with your investment was the best paid advice you could get? For those investors that lived through the 2007-2009 recession (aka: The Great Recession), the S&P 500 index has climbed from a low of 666 on March 6, 2009 to today’s (April 10, 2018) closing index value of 2,657. That is a 261% gain!! And you could have participated in much of those gains by doing – you guessed it – nothing.
But there were many people who were so sickened to their stomachs in watching the values of their 401(k), IRAs, homes, and trust accounts drop, that they pulled out and ‘went to cash’…never to get back in. These were the investors who locked in their losses. These were the investors who didn’t have the discipline to stick to their investment plan. And these were the investors who most likely didn’t have an investment advisor who could have given them advice to, “do nothing.”
The Practitioner
Let me be clear: I’m not here providing blanket investment advice for the masses or all of my clientele. And I’m not suggesting that ‘doing nothing’ is great investment advice. Rather, my point is that we are currently experiencing increased volatility in the market which is going to make some people second guess their willingness to incur risk and volatility within their investment accounts. For these clients, I encourage you to call me to discuss your concerns.
Investing based on your risk-tolerance, timeline, and type of account are some major factors that dictate how your particular investment mix might be constructed. What is good for your neighbor or uncle may not necessarily be right for you. And following your gut instinct (at least in relation to the stock/bond market) is certainly not a recommended investment approach to take.
Frequent conversations with your investment advisor or financial planner is important. Investing in the stock market is not necessarily something that your parents, coaches, teachers, or bosses taught you about. Most schools don’t offer investment classes as part of a general curriculum. Yet most people, if not all, will have some investment decisions to make throughout their lives. The questions that remains is ‘who do you go to for advice?’
If it’s been a while since we’ve spoken, let’s connect. Planning for possible “not so pleasant” times is something that we can discuss. I’ll leave you with a quote from Benjamin Franklin: “By failing to prepare, you are preparing to fail.” Let’s talk soon.