This past week the S&P 500 closed off just over 15% from the high it had experienced this summer. That means that if you have a $1M investment portfolio with 100% in equities, you could be looking at a $150K reduction in your net worth.
Is your stomach churning?
My stomach LITERALLY turns over as I type this and think about the impact that the recent market downturn has had on my personal balance sheet. Fortunately, I consume the right medicine regularly, and the churning in my stomach does not last more than 2-3 seconds. SERIOUSLY!
So, what is this magic medicine?
First - The past is an indicator of the future; stay the course with your IPS.
First, I have been in “financial counseling” for decades and I know that I must stick with my Investment Policy Statement (IPS). Based on the past, which I believe to be the best indicator of the future, I KNOW that—based on my asset allocation—my portfolio WILL go down as it has in the past month. In fact, I KNOW that it will likely go down MUCH more at some point in time in the future. BEFORE I even made the investments, I had done the research and knew about the volatility associated with the IPS I implemented.
- An effective IPS includes the down-market volatility of the investment strategy!
If you want to retire on the beach, remember this:
Focusing on long-term returns is great and leads to awesome projections that have you retiring on the beach. However, you can only end up on that beach if you are able to endure the down-market periods.
Second - Adhere to diet that is 100% devoid of the DAILY financial press.
Second, and this medicine will be easier for some of you than others, I adhere to a rigid diet that is TOTALLY, 100% devoid of the DAILY financial press. The day-to-day babbling in the financial press, my opinion, is absolutely worthless. In fact, it is MORE than worthless—it is actually harmful, as it can lead you to fall into a manic-depressive cycle when it comes to your investments.
Want to read up on investing right now? Turn to the classics.
If you are going to read up on investing, go back to the classics like Graham and Dodd. Or pick up the research papers from Fama and French. Or reach out to me, and I’ll get you some papers/information that are/is based on solid, proven, data-driven, fact-based research. Reading this sort of financial information is something that I continue to do.
We are wired for survival, but there is no need to panic.
The reality is that investing is VERY hard. We are wired for survival, and when we see threats such as a market downturn, we are inclined to panic. And that, my friends, will lead you directly into the arms the waiting bear. And the result will NOT be pretty.
You can read more in the attached article.
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- Do you have a well-defined Investment Policy Strategy that is used to drive your investments in support of a comprehensive financial plan?
- If not, would you like to partner with someone who is used to helping people get through these struggles and (then, with confidence) implement portfolio strategies in a systematic manner while focusing on your desired outcomes?
If so, feel free to send us an email or give us a call. We’d love to have the opportunity to help you find a bit more peace of mind when it comes to investing.
Enjoy the read and remember, it’s NOT about the money. It’s about how the money supports your goals!
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