Ultimately, our conversations with clients during times of extreme fear break down into two primary themes: Those who are concerned but are looking to try and take advantage of the market selloff and those who want to consider "reducing risk" or going to the sidelines entirely.
The underlying theme is that many feel an overwhelming need to just do something.
We heard loud and clear how sitting and taking these market downdrafts day after day makes us feel powerless, scared, and frankly, frustrated. Those feelings are all completely understandable given what we are going through.
Maintaining financial discipline and not acting on emotion is by far the most difficult thing do to during a market decline.
What helps is a clear understanding exactly what you own and why you own it.
Additionally, trying to put things in perspective as it relates to your life goals, the history of the market and what to expect in the days, weeks, and months to come.
We build your portfolio and make every decision based on your life, not the market.
This is true in good times and bad.
It's always easier said than done, especially when faced with violent volatility.
However, we do not, and will not, make changes to your portfolio due to the market, political climate, or factors out of our control.
Like Warren Buffet, we believe it is impossible to time the market.
This is just as true in these turbulent times as in times of greed.
It's not jargon or jawboning.
It's discipline with real consequences.
Yes, this makes the decision to stand pat extremely frustrating during a crisis, but it's important to remember that no action is still an action.
It is patience during these times that offers the highest return of all.
Since market timing is impossible, riding out this historic decline is how ensure you participate in the recovery when the firestorm of terror burns itself out and the permanent advance resumes.
Since these decisions are based on a strategic plan focused on your goals; not reacting emotionally is the best and safest option to take during this time.
The famous Jack Bogle quote of “don’t just do something, stand there” has never been more relevant.
A mistake now makes this temporary decline a permanent scar on your financial life.
Legendary investor Peter Lynch famously said, "Know what you own and why you own it." That is never more true than during times of greed or extreme fear. For an overview of exactly how we design and built client portfolios check out our blog here.
To offset the feeling of “don’t act” about making portfolio changes, below are actions to take right now to provide clarity and peace of mind.
Contact Us. If you're concerned, reach out to us. Whether it be a phone call or meeting, it will do wonders to help calm your nerves and put things in perspective. Getting advice from the media, family members or friends on what to do on the financial front during these times is potentially very hazardous...don’t.
Invest Additional Cash. We're not talking about your emergency fund. We're talking about additional cash you planned on investing but have not yet put to work. It just doesn’t get much better than this to put money to work so don’t wait.
Portfolio Quarantine. We highly advise putting on a “portfolio quarantine” of sorts during this time. Take a break, avoid checking your accounts as it will only lead to panic, despair or worse…action. Take a break of 3 months or more, minimum.
Media Fasting. It’s nearly impossible to avoid the news, but we highly recommend you do your best to try a "media fast." Avoid CNBC and other financial outlets entirely as well as any of the news stations that are hyper focused on exacerbating panic. Distance yourself as much as possible from most of these. Instead read a good book, take a walk or spend time with your family.
Write it Down. A great reference for the future is to write down what you're feeling today. Take note of the current level of the S&P 500. Take a screen shot of the terrible news headlines. Then put it away and revisit in 6 months to a year.
These declines, while painful, are not unique to history. There have been 17 bear markets since 1926, averaging one every six years.
They last an average of 22 months.
The shortest was six months and the longest being three years and seven months.
The lasting impact of this one is yet unknown, but the key here is that, like all others before it, in every single circumstance no matter how bad the news or market reaction, we make a full recovery.
We learn from it, move on and life returns to normal.
But this too shall pass.