Market Concerns:

Why Turbulent Times can be an Opportunity

If you’ve been paying attention (and maybe there’s a strong argument as to why you shouldn’t), the endless news cycle has been calling for a recession for a few years. Those cries have become slightly louder now with an incredibly turbulent election cycle nearly upon us. But, is the fear worth paying attention to? What is a rational person to do?

Wilson, ever the source of wisdom, would tend to agree with our sentiment. The fear may be perfectly natural, and even a good thing, but acting on that fear would be a mistake. Here are some important perspective points to consider if you find yourself giving in to that fear:

Corrections are common. On average, we can expect to see our portfolios down at least 14% at some point every year, again, on average. This doesn’t mean we were down for the year. It just means that at some point, every year, would should expect to see the value of our holdings, on paper, go down around 14%, on average, even if they end the year much higher or much lower.

Bear markets are common too, being defined as the value of our accounts ending the year down 20% or more. We should fully anticipate this happening about one year in five, on average.  Recency bias tells us that the market only goes up because that is all it has seemed to down over the past decade, but don’t fool yourself. Be prepared mentally.

For accumulators, those still building wealth, these markets are big opportunities. How often do the things we need to ensure our financial independence go on sale 20% or more? Even better, how often do we get to buy these things from people panicking and selling them at the exact wrong time? Well, if history is any indicator, the answer is about once every five or six years. This does not mean we should sit on liquid capital and wait for that correction. Far more can be lost by missing out on the growth of a good bull market. It just means we need to have the proper perspective for when it inevitably occurs again. Are you ready for the next sale?

For de-cumulators (that is a made up word), those in the process of drawing down on their investments, this is why we engage in proactive financial planning. Having a war chest of 2-3 years of lifestyle expenses is the key to not being forced to make poor decisions. We will absolutely be drawing down on this war chest at some point in retirement. During these times, we will fight human nature and not touch our investments while they are temporarily down. When they return, that is the time to refill that war chest to prepare for the next opportunity.

Remember the order: Goals – Plans – Portfolios.

As the always-insightful Nick Murray puts it, “All successful long-term investors are continuously acting on a plan. Failed investors are continuously reacting to current events – and always the wrong way.”

Our mission isn’t to insulate you from short-term volatility or to prevent your portfolio from ever going the wrong direction, but to minimize your long-term regret.

If you have any questions, or want some perspective on this issue, send us an email and let’s talk.

Disclaimer: This blog post is for informational purposes only and does not constitute financial advice. Please consult with a financial advisor to determine the best strategy for your individual needs.