July 27, 2020
It is time in the markets,
not timing the markets that counts.
The number one question I am asked by my clients is, “What do you think I should do with my money now?” The impetus for this question is often the fact that world conditions are causing the markets to actively fluctuate. Although they have a solid investment plan in place, they feel that they should take some sort of additional, responsive action on their existing portfolios. They seem to forget that in addition to our routine portfolio maintenance, we have regular meetings to review and modify their investment plan, based on my latest understanding of their risk tolerance, time horizon, goals, and changes in life circumstances. The borderline panic for some is understandable because emotions can run high when people watch their wealth ebb and flow dramatically. However, remembering and accepting that Markets will behave erratically at times will help you stay the course of your long-term plan. Paul Samuelson, America’s first Nobel Prize winner in economics said: “Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas. ”
Markets of all kinds regularly vacillate, which means that it is virtually impossible to predict the short term moves of any market. However, if you shift your perspective to the longer-term, then certain trends start to emerge. A reporter once stopped J.P. Morgan on the street and asked him, “Mr. Morgan, what do you think will happen to the stock market?” J.P. responded, “Well, son, the markets will fluctuate.” This, unfortunately, is the painful reality of investing. I am repeating the escalator model here from my last article because it really does provide the perfect metaphor. Imagine riding the up escalator while playing with a Yo-Yo. The day to day moves of the market are like the up and down motions of the Yo-Yo, but, we hope the up escalator represents the trend of the market to gradually rise over the long-term.
In today’s 365/24/7 news cycle, and with the ability to day trade inexpensively, the tendency to try and predict, can be particularly hard to suppress. Many people wish they could get into and out of the market at the right time, yet this remains almost impossible to do. The same J.P. Morgan also said, “There is not a lot of precision in the markets.” With the advent of computers, it has become easy to be seduced by the seemingly precise calculations that financial analysis software can produce. Although the latest software programs can project your portfolios worth twenty years out, results rarely turn out as predicted because of the constant change in economic and world conditions. Many financial greats have borrowed from a quote by Niels Bohr, who won the Nobel Prize for physics in 1922. He wisely observed, “Prediction is very difficult, especially about the future.”
When markets are in flux and you feel the urge to panic and make short term moves, rely on the wisdom of Warren Buffet, who said: “The Stock Market is designed to transfer money from the Active to the Patient.” If your portfolio is optimally designed to reflect your risk tolerance, time horizon and investment objectives, this should help you stay committed to your long-term investment strategy and hopefully allow you to sleep at night.
As always, please call me if you would like to discuss or have any questions (201) 618-8818.
CEO, CFP® Wealth Preservation Solutions
Personal Family Office / 360 Wealth Management