Over the last two weeks we have seen a substantial increase in market volatlity, first downward then upward. Talk of bubbles popping and major corrections on rising treasury yields seemed ready to come to fruition, and then Congress passed another giant stimulus and everything is back to roses. As always, the one thing you can be certain of in the markets in uncertainty.
In this continually shifting landscape, it is a good opportunity to take stock of our own investing philosophy, and make sure emotions are not getting in the way of rational decisions. I borrowed this chart from an excellent book on investing, The Investment Answer1. The chart outlines the cycle of emotions for typical investors in the market. It also points out that to have good expected returns, you sometimes have to act in a way that is counter-intuitive. In times of elation, when the markets can do no wrong, you have to think about rebalancing and capturing profits. In times of fear, you need to take advantage of available discounts and invest for long term growth.
So where are we now? With several years of increasing growth rates, we could easily be in the “elation” stage. Simulanteously, with a year of Covid shutdowns, relocations, and extreme government debt, there is plenty to be frightened of. The prevailing market philosophy is that for the long term investor, it is perhaps most important to just not get pulled into making emotional decisions at all. It is better to develop a balanced, well-diversified portfolio, and maintain it; rebalancing regularly, and not making major alterations in a hurry because of the latest investment blog you read. This is sound advice.
The authors also suggest that you consider seeking a professional manager to help you achieve your goals. A financial advisor can help you develop a diversified portfolio. We do this at Value Monitoring Inc. They may have additional market insight to other effective investment strategies (like the ones we use at Value Monitoring Inc.). In addition to portfolio construction, a professional can help keep you from making rash emotional decisions. They can also assist you in planning for the rest of your financial life, including dealing with the taxes from your investments, financing your home, getting appropriate insurance coverages, and developing retirement and estate plans to help you keep more of your money.
Jim, Mark, and Dave
1The Investment Answer: Learn to Manage Your Money & Protect Your Financial Future, By Gordon Murray and Daniel C. Goldie, 2011.
p.s. To speak with a financial advisor, click on the calendar app below, go to ValueMonitoring.com/Welcome.