Action vs. Reaction
I would like to meet the person who said, “may you live in interesting times” and smack him with a 2x4. (It has to a man that said that, women are wiser, give me old, dull, and boring.
The fact of the matter is, what is currently happening in the stock market right now is NORMAL. And I repeat NORMAL.
First of all, what you hear, read, and pummeled by with every version of the media about the “stock market” is NOT, and I repeat NOT what is happening to your account. Unless, of course, your account is a mirror image of one of the indexes (S&P 500, DOW, etc.). We preach diversification. This means US large companies, small companies, foreign companies, different types of bonds, and if appropriate CDs, money markets, or cash.
What is NORMAL about this? Going back 36 years, the S&P 500 has been down a median of 9.6% every year at some point during the year with the worst being down 49%. In 29 of those 36 years the S&P 500 ended the year at a value greater than then mid-year decline. Therefore, the current 13% decline is not a surprise. It happens almost every year. This same index has returned a median of 15.4% to investors per year for the same thirty-six years with the best year being up 38% and the worst being down 37% in 2008 (see chart below and maybe read the story attributed to Warren Buffet from the link provided.)
That is why we preach diversification. A diversified portfolio will have a different “investment experience” than that which is vocalized by the media.
I will allow that, this time, the current volatility is result from different sources than before. This decline is a direct result of activity from the White House. Policies are changing daily, divorcing our nation from long-time trading partners, announcing tariffs then changing the start date of said tariff and / or amounts, abandoning the citizens of Ukraine to Russian aggression, and challenging the rule of law by ignoring the courts. These actions make it difficult to run a company. Companies and business thrive on certainty, the reality is that business has great difficulty making informed decisions when they cannot plan or predict how economic policy, trade policy and foreign policy will impact their businesses. Business can plan, strive and thrive when they have clear data to work with. What we have now is maximum uncertainty on steroids, which businesses, the market, and investors do not like.
What to do now? Your financial plan and investment allocation was designed to meet cash flow needs both in the near- and long-term. This means there is a plan in place to manage and thrive through this. We plan for events like this. We do not know when they will occur but only that they will occur.
Attempting to time-the-market is for the “soon to be poorer.” If you have cash on the side-lines that you have been hoarding and really will not need to spend for several years, consider investing some now and if things get worse, then invest more. If you are fully invested with your cash-flow-plan firmly in place, the best thing to do is ride this out. The market crash resulting from the dot-com bubble and 9/11 terrorist attacks ended, as did the financial crisis of 2008, as did the global pandemic of COVID in 2020. This market decline is really the same. Just a different source. It will inevitably end as well. The best thing you could have done in all the previous major declines was to invest more money.
Act on market declines. Do Not React to market declines.
Those that invest in difficult times thrive. Those that persevere in difficult times survive. Those that panic and sell in difficult times (or in anticipation of market declines).…well, don’t usually do so well.
Wollman Wealth Designs, Inc is a financial planning and investment advisory firm in Escondido, CA partnering with families, friends and clients in San Diego County and around the country. Please visit our website, call the office or send us an email with your comments or questions.
Warren Buffet’s comments:
https://finance.yahoo.com/news/warren-buffett-why-stocks-hamburgers-031629347.html
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All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful. Investors cannot invest directly in indexes. The performance of any index is not indicative of the performance of any investment and does not take into account the effects of inflation and the fees and expenses associated with investing. Past Performance does not guarantee future results. A diversified portfolio does not assure a profit or protect against loss in a declining market.