Staying the course in turbulent markets

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In North America we’re now into the 10th week of the pandemic lockdown and life is continuing on. It might not be the same as it was and it likely won’t be for a while, but we are generally making do. More importantly things will start to get a little easier as more things are opened up and we will find a new normal.

Driving to the store a couple of days ago (yes, I went outside!), I heard an interesting thing on the radio; the announcer was saying that at the time the NASDAQ was still in positive territory for the year. This got me thinking about investing and my investments. I haven’t moved a single one of them during this whole situation even though we’re now in a financial situation where having some extra funds might not be a bad thing.

It also reminded me of a conversation that I had with my mom at the very beginning of this when the financial bloodbath was occurring. They were thinking about pulling some of her retirement savings into cash. My advice to her then was ‘stay the course, leave the investments where they are’. This was echoed by their financial advisor which I was relieved to hear.

When you invest, especially in the stock market, you have to stay the course based on your initial plan. You can’t think emotionally about your money, it’s all about numbers and there are some simple realities to keep in mind when the financial world goes bat shit crazy for a few days:

Investing for the long term

Investing is for the long term, not today or tomorrow but for that magical 5-10 years or more. If you’re not thinking in that time frame, then you might need to get some better advice (or you really know what you’re doing).  If all goes well, you’ll end up making money during that time (hopefully a lot), but one reaction to the markets can derail that in short order.

The biggest returns occur over time; the long-term rate of return historically amounts to about 10%. Unfortunately, that only works when you don’t overreact to any single incident or event, you stay the course. Time smooths out the bumps along the way. This leads us to a second point

Timing the market

Is it possible to time the market? In theory it’s possible, but there are so many unknowns and variables that even if you manage to get it right a few times the chances of miss-timing are incredible ever time. Most famous investors advise against it, the one that sticks out for me is Warren Buffet, if they say it’s hard, I would be inclined to believe them.

Investing is about the long game and staying the course. When you first start investing you likely have a time horizon that is decades out and you plan for that, not for the possible one-time blip.

Risk Tolerance

When the markets go bonkers, as they have during the past 10 weeks, you really start to understand why your investment advisor sat down to really understand what your risk tolerance is. Investing can be risky. Yes, the stock markets on average return about 10% per year but there might be some huge swings in there, and investing needs to be analytical and not emotional.

Investing can be risky; you should know this going in – you can lose everything.

The best course of action

Your best course of action when the markets are reacting to world news is likely going to be leaving everything alone. If you are concerned to reach out to your investment advisor, if you don’t have one and this type of market gave you some heart palpitations then you might want to consult with one.

I have left all of my investments exactly where they were at the beginning of the pandemic and unless there is a need those investments will stay exactly where they are. I think I’m back to about break-even (but that’s me) and stock markets typically go up after they tumble.

Great article by someone more knowledgeable on the topic wrote this: No, You Didn’t Just Lose Half Of Your Retirement Savings

Disclaimer: I am not an investment advisor, any thoughts, advice, and opinions I share are my own you should always consult a professional.

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2 thoughts on “Staying the course in turbulent markets

  1. Great post! Isn’t it amazing how in just a little over two months, prices are back to pre-market crash?! This was definitely an odd one to experience for my first time as an investor!

    I couldn’t agree more with everything you wrote here: investing for the long term, leave your portfolio alone – especially when markets are going crazy and know your risk tolerance! All first time investors should be reading advice like this (and it’s a great reminder for those who have been in the game a long time).

    1. Thanks for the comment. I read somewhere that there is a similar president in 1968 where there was social unrest, Kennedy had been assassinated and there was a virus making the rounds, but the markets rebounded. And today they’re back in the negatives, the volatility can be hard to bear if you’re watching the market.

      Investing are long term, going for the quick wins can be risky.

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