My Thoughts on the Current Market

With the recent volatility in the market the past few weeks, I’ve been busy checking in with clients. I’ve shared with them our strategy, what we’re doing, what we’re not doing, and how we respond to times like these. If you have a financial advisor, he or she should be reaching out to you, and you should feel comfortable expressing your concerns with them.

I’ve shared all the information below with my current clients, but for those of you who aren’t clients (yet), here are some things to keep in mind.

It’s Emotional

Let’s acknowledge the emotions here. It’s unsettling to watch values in accounts drop. Scary, even. I feel that too. It’s okay to have emotions around money! We start worrying about the future and questioning what will happen. 

Money is emotional. It can bring up positive and negative emotions in many facets: inheritances, salaries, fines, bonuses…we can have really wonderful feelings, terrifying feelings, or any other feeling on the spectrum surrounding financial circumstances. We are tempted to make decisions based on these emotions, but we need to discover healthy ways to manage our emotions around money. 

Change Your Scope

If you’re planning your financial life along the horizon of your lifetime, then view the movement of the market through a lifetime lens. Not daily, weekly, or monthly ups and downs. Focus on the long term historical returns through history, which have withstood dips during previous scary world economic events. We came up with a plan when we were sane. Let’s not change the plan when things are insane. 

Trust your rational planning. We don’t want to change a financial plan because of current headlines. We cannot let the chaos of the current situation drive our financial decisions right now. This is why having a financial plan is so important, so you can trust it. I have accounted for dips in the market in my planning. Although we don’t want these to happen, we do expect them.

Every Time Feels Like the First Time

I remember when the S&P downgraded the credit rating of the US debt. Nothing like that had ever happened before, and I remember feeling frantic over how the markets would respond. You can look at any event in history where the market was scared, and each event felt like that was the first time the market had been faced with something of that magnitude. It’s called “recency bias.” We remember recent things a lot more vividly than we remember things from long ago. It affects us more because it’s current. 

But in every event (S&P downgrade, Brexit, Greece defaulting on their debt, etc.) the market recovered. And we all moved on. Each time feels like the first time, but it’s not. When you find yourself saying “but this time is different,” realize that many others (and maybe even you) said the same thing during the last big panic in the market.

What I Am Doing

It may seem like I’m just being flippant about the drop, and I don’t mean to sound like that. I admit it is scary and unsettling for me. People are asking me what I’m doing right now for clients. I’m keeping the long-term view, but I’m not just riding it out. I’m actively tax-loss harvesting in my clients’ accounts. This basically means I’m selling an investment to intentionally realize a loss, so I can use the loss to offset gains in the future and save on taxes. As I sell I’m also buying similar replacement investments to keep us on track with the long-term financial plan.

I’m also using this as an opportunity to rebalance clients’ accounts. Rebalancing right now means selling bonds because they’ve kept their value and buying equities that are cheaper right now.

So, in summary: stay the course. Yes, it’s uncertain. Plan for the uncertainty. And don’t change the strategy because of your fears. And hopefully my next blog will be about what you should do when there’s a huge upswing!