Market Volatility and Investing

With decades of experience working with clients’ portfolios I know how market volatility makes investors uncomfortable. Every time the markets would have big swings up or down, I would get a call from a few clients wondering if they needed to make changes to their portfolio. Despite having built good solid portfolios with high quality stocks and bonds and cash equivalents it would still happen. It’s human nature to want to do something when the markets make big moves. Unfortunately, as individual investors we are wired exactly opposite of how we need to be wired for good long-term investment success. We want to get out when things are bad and then wait until markets feel good again to get back in. The problem with this is twofold, first this strategy is selling low and buying high – the complete opposite of what you should to do and second you have to be right twice, on the way out and on the way back in. This is virtually impossible; you may get lucky on one side of that equation but to get both right and consistently implies you have a crystal ball for the markets and unfortunately those just don’t exist. The most important thing you can do when investing is to make sure your asset allocation (how much you have invested in stocks, bonds, and cash) is aligned with your short, medium, and long-term goals. If you have enough cash to meet your next 12-18 month goals, enough bonds to generate cash on a consistent basis, and the rest in stocks to grow and meet your long-term goals then you should not be making changes to your portfolio. If you have a life event such as a death, divorce, retirement, or health issues that change your goals then that is the time to make changes.

Patience is a virtue when investing.