The stock market suddenly drops 10%, 20%, 50%.

What do you do?
1: Stop adding new deposits to your investment accounts.
2: Sell your investments and wait in cash until the dust clears.
3: Start interviewing new financial advisors.

None of the above. The correct answer is 4: Stick to your long-term plan, and if you are invested smart, using science based investing, maybe consider investing more while the markets are giving you a discount!

One of the HARDEST parts of investing is managing your emotions when markets are bumpy and everyone is predicting doom and gloom.

Checking your portfolio every day is one of the worst things you can do.

Why?
Because the more often you look…
The more opportunities you give yourself to panic for NO clear reason.

Some facts about the stock market (S&P 500):
Day to day, the stock market is up about 50% of the time and down 50%—a coin toss.
On a yearly basis, it’s up roughly 70-75% of the time.
On a 10-year basis, it’s up about 94% of the time.
And on a 15-year basis?
It’s 100% up.

And you can improve the odds of the statistics further than the one above, by using evidence based investing, through asset allocation and not just invest into the US.

Daily ups and downs are just noise.
What matters is the trendline up over time.

How do you stay focused on the big picture?
a) Stop checking so often. Think in 5 year blocks, not daily intervals.
b) Review the data and evidence. Over the long term, the market trends up and if you position smart, you can capture higher gains than the index.
c) Have a plan. A good investment strategy is built for the ups and downs.
d) All investing success is goal-focused and planning-driven.
e) Investing is about building wealth for the future, not reacting to the present.

So next time the markets are low and you’re tempted to check your portfolio for the 3rd time for the week, ask yourself:
“Am I thinking like a successful long-term investor or a day trader?”
True financial freedom comes from patience, not panic.

If you and your friends would like to find out more about science based investing on large amounts of wealth, we will be happy to connect to see if there is a match, as we still have capacity to add value!

How do we navigate SVB and the banking crisis?

With what has gone on for the past week about Silicone Valley Bank and some stress levels tested, this is a good time to relook at how we can make great decisions and evergreen investment decisions in both good and bad times.

In times of crisis, there are many concerns and unknowns going forward, but in our practice, we focus on things we know as facts and information that we can control.

We focus on the things we can control and have an understanding of how investment markets work.

What are the strategies we can use to navigate this current environment and achieve your financial goals?

If there will be enough interest for a webinar like this, I will be happy to conduct one.

But in short, here are a few pointers.

1.Uncertainty is unavoidable

Remember that uncertainty is nothing new and investing comes with risks. Consider the events of the last three years alone: a global pandemic, the Russian invasion of Ukraine, spiking inflation, and ongoing recession fears. In other words, it may have seemed as if there were plenty of reasons to panic. Despite these concerns, for the three years ending February 28, 2023, the Russell 3000 Index (a broad market-capitalization-weighted index of public US companies) returned an annualized 11.79%, slightly outpacing its average annualized returns of 11.65% since inception in January 1979. The past 3 years certainly make a case for weathering short-term ups and downs and sticking with your plan.

2. Market timing is a hard game to play

Inevitably, when events turn bleak and headlines warn of worse to come, some investors’ thoughts turn to market timing. The idea of using short-term strategies to avoid near-term pain without missing out on long-term gains is seductive, but research repeatedly demonstrates that timing strategies are not effective. The impact of miscalculating your timing strategy can far outweigh the perceived benefits.

When the unexpected happens, many investors feel like they should be doing something with their portfolios. Often, headlines and pundits stoke these sentiments with predictions of more doom and gloom. For the long-term investor, however, planning for what can happen is far more powerful than trying to predict what will happen.

3. Diversification is your best friend.

Nobel laureate Merton Miller famously used to say, “Diversification is your buddy.” Thanks to financial innovations over the last century in the form of mutual funds, and later ETFs, most investors can access broadly diversified investment strategies at very low costs. While not all risks—including a systemic risk such as an economic recession—can be diversified away (see Principle 1 above), diversification is still an incredibly effective tool for reducing many risks investors face. In particular, diversification can reduce the potential pain caused by the poor performance of a single company, industry, or country.¹ As of February 28, Silicon Valley Bank (SIVB) represented just 0.04% of the Russell 3000, while regional banks represented approximately 1.70%.² For investors with globally diversified portfolios, exposure to SIVB and other US-based regional banks likely was significantly smaller. If buddying up with diversification is part of your investment plan, headline moments can help drive home the long-term benefits of your approach.

If you are a doctor, high income earner, are affluent and open to have an initial chat with no pressure, just drop me a message to connect with me.

FOOTNOTES

1. ¹Consider that a study of single stock performance in the US from 1927 to 2020 illustrated that the survival of any given stock is far from guaranteed. The study found that on average for 20-year rolling periods, about 18% of US stocks went through a “bad” delisting. The authors note that delisting events can be “good” or “bad” depending on the experience for investors. For example, a stock delisting due to a merger would be a good delist, as the shareholders of that stock would be compensated during the acquisition. On the other hand, a firm that delists due to its deteriorating financial condition would be a bad delist since it is an adverse outcome for investors. Given these results, there is a good case to avoid concentrated exposure to a single company. Source: “Singled Out: Historical Performance of Individual Stocks” (Dimensional Fund Advisors, 2022).
2. ²Regional banks weight reflects the weight of the “Regional Banks” GICS Sub-Industry. GICS was developed by and is the exclusive property of MSCI and S&P Dow Jones Indices LLC, a division of S&P Global.