Often, taking good advice is the most difficult at the time it’s most needed. This is certainly true of staying the course with your long-term investment strategy in the face of scary headlines. An additional challenge is that the opportunity to learn these lessons is spread out far enough that people tend to forget the last time they were challenged and what the outcome was.
Recently however, we have been given a great example that we need to reexamine and remember.
After reaching all time high prices late in the third quarter of 2018, headlines began to appear pondering whether or not the Fed was raising interest rates too quickly and was going to therefore push the economy into recession. These were accompanied by articles discussing the slowing economic growth in Europe and China, attempting to imply a causal link instead of it being simple correlation.
Despite robust economic reports, these stories gathered momentum, and found many people willing to act. The media are always willing to highlight negatives, and become creative in their selection of irrelevant data points in the attempt to signal a trend that isn’t there.
“First time ever the market had a negative fourth quarter following a positive three quarters.”
“Worst December since the Great Depression.”
We fielded more than a few inquiries from clients who were scared enough by these “stories” to temporarily forget that their well designed portfolios are part of an overall plan designed to achieve their long-term goals.
As we’ve often said, being nervous, or even frightened, by scary stories in the news and concomitant market fluctuations is perfectly normal and understandable. It’s acting on those fears that’s not ok.
In a blog just before Christmas we said this decline is likely to be a distant memory a year from now. What’s happened since? The market saw its “best January in 30 years” and has continued its climb to new all-time high prices amid very positive corporate profit reports and continued strong employment numbers. In fact, in just a few weeks two-thirds of the decline has been made up. Imagine how people feel who may have acted on their fears just before the end of the year.
Trying to time the market is an idea that seems to be completely logical. Thinking “the market is bad so I’ll get out for a while and wait until it’s better” sounds perfectly rational. But what’s really being said is “the market has declined and the (constantly negative) news stories are scaring me so I’m going to sell my well crafted portfolio and wait until the market is more expensive again before I get back in.” Now that doesn’t sound so logical. Every market decline in the history of our stock market prior to this one has been temporary. To think this recent decline will be the first one ever to be permanent is irrational. To think this would happen during a booming economy is even more irrational.
This was simply a brief 20% off sale on the shares of some of the best companies in the world. For those of you investing in retirement plans or other investment accounts methodically, you were able to pick up a few extra shares before the sale ended. For those of you who are finished with your investing and are enjoying retirement, we continue to feel this “sale” will end soon and be forgotten in the not too distant future.
We hope over time our clients will learn to tune out the media during future sales. In the meantime, we will be here in person, on the phone, with our financial forums, through our blogs, and very soon with our new podcasts. We will be sending out information about the podcasts in the coming weeks.
Turn off the negative misinformation, know that your plan is in place to help you reach and maintain your financial goals, and spend time with the important people in your life.
-Michael Rogan