Look at the Big Picture
Market volatility can make anyone nervous, especially in our always-on, 24/7 news cycle.
In the early 2000’s the average investor typically checked in on their accounts once or twice a quarter when their custodians sent paper statements. As for the Dow Jones and S&P 500, you’d usually see two numbers every day: one on the morning news and another in the evening. Today, watching your nest egg fluctuate in real time, while social media and cable news shout a steady stream of panic, can make it feel like your financial plan is living and dying moment by moment.
I like to compare the volatility of the stock market to the ups and downs of my golf game. When out on the golf course, I have some really good shots that make me contemplate whether I should go professional, but I also have some absolutely terrible shots that make me never want to touch a golf club again. This naturally creates an emotional roller coaster, just like it can feel when watching the bull and bear markets throughout different financial cycles. The biggest factor that plays a key role in your golf game and investment portfolio is staying composed and not letting your emotions take over when things take a turn for the worst.
Our Financial Planning process considers all the available data that could impact your life and money, taking in a wide view of the markets, your financial plan, and the goals you have for the future. You can see that same big picture if you unplug, step back, and focus on three important investing principles.
1. Learn from the past
On Black Monday, October 19, 1987, the Dow Jones Industrial Average dropped 22.6% and the S&P 500 fell by 20.5%, the biggest percentage declines in history for both indexes. Many investors, fearing another Great Depression, sold off huge portions of their investments. Those who didn’t panic and stayed the course recouped most of their losses before the end of the year. Two years later, the markets reached new all-time highs.
After 9/11, markets dropped for 11 straight days and lost 11.6%. Recovery only took 31 days.
The recession that COVID triggered lasted all of two months.
The 6.8% drawdown on the S&P 500 after Russia invaded Ukraine in 2022 was recovered in just 23 days.
Each of these pullbacks — and countless others — hurt investors in the moment. But plotted along the graph of a typical investor who stuck to their plan, volatility registers as a small downward blip on a line that continues to trend upward. You might even consider volatility a “tax” that investors have to pay from time to time on their funds in the ever-shifting market conditions.
2. Focus on the present
No, not the markets’ present. Your life’s present.
Whether your investments are up or down at a given moment, there are still bills to pay, life transitions to prepare for, and long-term goals to keep working towards. Your Financial Plan and investment strategy is built to support you during volatile markets while maintaining your forward progress.
But, just as importantly, remember that you’re in control of that plan. A balanced, diversified portfolio gives you and your advisor options to recalibrate your goals. In some cases, market volatility might also create opportunities for you to take advantage of, such as tax-loss harvesting to reduce your tax bill or “buying low” on certain investments. And if, like most people, your best course of action during volatility is to stay the course, you could still review your overall financial picture and look for unnecessary expenses you might want to cut back on or implement a new investment or savings goal.
3. Prepare for the future
No one can predict or control what happens in the markets, let alone what might happen in the world that could affect the markets. You can, however, pinpoint when you want to buy a new house, the timeframe your teenager’s college tuition will be due, the runway you’ll need to build for the company you want to start in five years, and the early retirement date that you and your spouse have been dreaming about.
Your Financial Plan can help you achieve the best life possible with the money you have at every stage of your life. Being mindful of that big picture can give you more confidence in your plan today and more excitement for tomorrow.
By not letting my emotions get the best of me, I can still have a great round of golf, even with a couple of bad shots. While both the golf course and market have their share of ups and downs, the key is to remain positive and calm in the next market correction, as you have ridden the waves of volatility before.
Don’t hesitate to give us a call if you have questions about the latest news from Wall Street or any other piece of your financial plan.
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~Portions Adapted from ROL Advisor~
