Staying the Course

It is not uncommon for us to get the question, “What are you going to do with my investments when the market sells off?” The answer often surprises people, we most likely won’t do anything. If we decide to do something, we will probably be buyers if the market continues selling off. So why even have an advisor if we won’t do anything when the news gets bleak? The simple answer is that we have already done something, we just did it well before any crisis happened.

A good investment strategy always starts with a plan that is catered directly to your goals. Not everyone should have the exact same kind of strategy because everyone’s lives are different. Some need money immediately and some need it decades from now. The timing of an individual’s needs can greatly impact how to invest. Once we understand what you are trying to accomplish, we can build an appropriate asset allocation that balances risk and return. After rigorous stress testing, we can have confidence that we are giving you the highest probability of success.

Part of the reason we stick to our long-term strategy is because even a small mistake can have big consequences to returns. Over the last 25 years the S&P 500 has annualized returns of 12% when you include dividends.  This means an investment of $10,000 in 2020 would have grown to almost $200,000 by 2025. However, if you take out just the 10 best days the return falls almost in half.  That is a massive difference in return and could drastically impact your ability to meet your long-term goals.

What makes these numbers even more interesting is that often the worst days closely followed by the best days.  For example, during the 2020 market crash, the second worst day (March 12) was immediately followed by the second-best day (March 13).  This makes market timing even more risky knowing that the best days are often closely associated with the worst days and that jumping in and out of the market could cause you to miss the most important returns. Instead of focusing on how to time the market, the data suggests that it is much more important to make sure you are invested appropriately for the long term and to not risk any guessing in the short term because the results could be devastating.

We believe that the right time to prepare for a crisis is before it happens.  By creating a diversified portfolio that is appropriately defensive and tied to your goals we are able to have confidence during times of stress, knowing that we have a solid long-term strategy.