While this isn't a prediction of the future, it provides some important talking points when you talk to yourself about the recent market performance.
Here are five things to keep in mind:
- It is completely understandable to feel afraid when the market is volatile. The financial "infotainment" industry is designed to stoke fear to keep our eyeballs glued to our screens (or get us to follow their clickbait links) to see what happens next. Speak the truth in the face of that fear. Market declines are normal and expected. Some fear is understandable. Volatility is not a reason to change course or take "evasive maneuvers" with your portfolio. How we respond is what will make
the difference in our future.
- A down market at some point during the year does not mean the entire year of performance is lost. The average intra-year decline going back to 1980 (meaning the decline from the high point to the low point at anytime during the year) was -14%. In spite of that, 32 of those 42 years saw a positive calendar year return (January - December).
- The human brain tends to overestimate the benefits of avoiding a loss (no matter how big or small) vs. the benefits of realizing gains by a ratio of about 2:1. Remembering that this mental bias exists can keep you on track even when you feel like bailing out.
- It's easy to feel tempted to sell out of your portfolio until it's "safer to invest". The history of the 20th (and now 21st) century is full of nearly constant political turmoil, war, upheaval, painful progress, disruption and change. An investor who wanted to wait until it seemed safe probably never would have invested. Instead, markets have rewarded investors who stayed invested through the turmoil.
- A well-crafted financial plan assumes there are going to be down market years. No pilot takes off knowing the plane is going to crash if they encounter any turbulence. They plan for it and expect to safely navigate you through it with your seatbelt securely fastened. Whether you are one of my clients or you work with another adviser, talk to your adviser about your financial plan and how it's built to get you safely through the bumps.
Remember, it's normal to feel fear when the ride gets bumpy. I'm here to navigate you through it and ready to talk if you want to discuss your concerns. Thank you for your trust and your time.
Adam Broughton, CFP®, CPWA®