Published by Robert W. Huntley, CFP®, CHFC®, Founder & Wealth Advisor
“You can’t steal second base with your foot on first”
As I sit down to write this entry, I am looking at data from yesterday’s single day market movement. Large US stock market indexes shot up close to 5% in a single trading day.[1] That is the biggest one day move up since March of 2009 for some of the indexes and for others, it was the largest single-day move ever recorded in US markets.
This is ironic since I am setting out to address what looks like year-end statements that will show many investors down for the year in the 10% range for the first time since 2008.
Does Anyone Enjoy Getting Bad News?
Look, no one likes opening year-end statements to news like that. 2018 losses of 10% are not welcome news.
By contrast, 2017 was a great year. We all enjoyed looking at the year-end 2017 statements.
But isn’t that the way this goes?
You cannot hope to achieve long-term returns without accepting the reality and certainty of short-term volatility. It’s just that simple.
Ten Years for The Record Books
It’s been ten years now since the 2008 financial market meltdown in stock and bond prices. That was a painful experience for anyone old enough to have been close to or already retired.
The 10 years since then have not really felt great. However, by the numbers, we’ve experienced one of the longest bull markets in US stock market history.
At some point, we know that run must take a breather. The economy will eventually enter into recession again.
We also know that markets cycle up and down. A disciplined investor will stay calm and rely on her strategy.
A well-crafted strategy already takes into account the absolute certainty of market volatility, both up and down. Your strategy should account for that and for your personal comfort level with how far your portfolio can fall in value before you’re tempted to “react” to the negative headlines.
Market Timing:
The problem with reacting to headlines and fear is that often when the market is finished selling off, we see sudden reversals like yesterday and before you know it you’ve missed a 10% or 15% move up.
As hard as it is to know when to sell as markets move down, it’s just as hard to know when to buy back in.
Statistics show us that trying to play this game is a losing proposition for most investors.
It’s better to have a strategy and stick with it through the ups and downs.
Bottom Line:
If you’re our client, you already have a strategy in place.
If you are uncomfortable, let’s review your strategy and update it if necessary.
But we strongly recommend avoiding emotional decision making. Stick to your plan, let it work for you.
And if you’re not our client and for whatever reason are not confident in your plan, let us give a second opinion on how you’re positioned. We will shoot straight with you and let you know you’re well positioned or if you need to make some changes.
[1] https://www.theguardian.com/business/2018/dec/26/us-stock-markets-post-christmas-sp-500-dow-nasdaq