Investing is hard. Investing in down markets is harder.
When you decide to invest your money, you’re making a tradeoff; you’re sacrificing something you can buy and consume today to achieve more tomorrow.
And when our portfolios suffer losses like most of the investing world has, we question our investing decisions. There is a lot of “I should’ve” speak going on in our heads when extreme volatility rears its ugly head in the stock market.
There is also a lot of talk about “risk” these days. As financial advisors, it dominates our time not just in down markets but also in up markets. The more “risk” you take, the greater potential for more reward.
Risk is something we can measure. Risk is not what causes us anxiety. And it’s not what makes investing hard when the markets are down.
Uncertainty is our challenge. In volatile markets, we become more uncertain about our futures, money, and investment decisions.
When markets are up, we are not thinking about the uncertainty of the future as intensely as we are when inflation is up, there’s a war, and economists are speaking the “r” word out loud. (recession).
And we, Xavier and I, are in this with you. We have emotions that illicit our desire for financial security during these times, and we fight the urge to “circle the wagon” and get defensive in our portfolios. But here are 6 reasons we stay committed to our investment strategies.
6 Reasons We Stay Invested Even When It’s Scary Out There.
When it gets scary in the markets, we seek to cut through our emotions and focus on what we know to be true.
- Historically, there is no other economic precedent other than recovering stronger after a challenging market. We do not want to miss out on that recovery.
- We are having very similar conversations with clients today that we had in March 2020 with the COVID market crash, the 4th quarter of 2018, where the market dropped almost 20%, and in 2008-2009 with the great recession. 2008 happens to be the year I (Erik) went independent as a financial advisor. Talk about uncertainty piled on uncertainty. We recovered stronger.
- We are invested according to our capacity to take on risk, meaning our portfolios are built for our plans.
- We have confidence in the American economy.
- I (Erik) learned over 12 years of collaborating with a family therapist (check out our podcast show) about the negative impact of our emotions on our behavior. We work hard not to let my emotions get the best of my rationale.
- Despite average intra-year drops annually of 14% over the past 42 years, the S&P 500 still managed to have a positive annual return 32 of those years. See the J.P. Morgan Chase chart below. A simple translation of the chart is that practically every year since 1980, the S&P 500 had an average drop of 14% during the year despite ending positive most of those years.
This economic cycle will pass, and we will come out on the other side.
As always, below is a link to our schedule. For our clients, if you want to talk about your portfolio, book a time with us. If you are not a client and want to learn about our investment philosophy, book time with one of us. Schedule a call.
The opinions and forecasts expressed are those of the author and may not actually come to pass. This information is subject to change at any time, based on market and other conditions and should not be construed as a recommendation of any specific security or investment plan. Past performance does not guarantee future results.