investing
Don’t let turbulence distract you:
I
KEEP YOUR FOCUS ON THE LONG-TERM by Matt Nelson – Managing Director, San Antonio Market, Prime Capital Investment Advisors
I’m sure you’ve heard the saying, “remove your emotions from investing.” In the turbulent times that we are in right now, that is easier said than done. It does not matter if you own real estate, stocks, bonds, mutual funds or private companies/equities. You’ve probably also heard that we have never seen anything like this before, this time is different. That statement is true, but not so true. While it may be a different headline, statistically speaking we have seen a market/economic behavior similar to this before and likely will continue to see it in the future. History does not predict the future. However, this is not uncommon; it is how you react that will determine what your financial situation looks like long-term.
Past Major Downturns and Headlines
In the past 20 years, we have lived through two major downturns in the market and economy that many thought we would not ever recover from. We had the tech bust or dot com bubble and 9/11 in the early 2000’s... Then, we had the global financial crisis in 2008-2009. But did we recover from these major events and have the longest bull market in the history of the stock market and have a robust economy with low unemployment? We did.
Market Volatility – Sticking to your plan
The last 31 years have provided an average intra-year drop of -13.5%, yet annual total returns were positive 25 of those 31 years (80% of the time).1 “Timing the Market” typically makes recovery harder – if not impossible. Over the past 20 years, the best 10 days in the market have been essential to growth. Seven of those 10 days occurred within two weeks of the 10 worst days.1 While periods of sharp selling and investor angst is hard to stomach and causing further anxiety, we urge investors to keep a
8
B oerne B usiness M onthly | April 2020
long-term perspective and avoid panic selling; only exacerbating the sell-off and potentially causing more harm to long-term investment objectives by missing a potential rebound in global markets.
Having a Financial Plan can Create Calmness
Whether you own a business, work for a small business, work for a Fortune 500 company or are retired, we feel it is imperative to have a financial plan in place. Even though it is tough to do, removing emotions from the decision-making process and to striving to not make rational decisions may dramatically impact your long-term financial plan. Having a financial plan in place and sticking to it can create calmness during volatility and times of uncertainty. Looking back historically and building the historic data into your financial plan can give you the sanity and peace of mind you may need. If you already have a plan in place, stay committed to your financial plan and strategy. If you do not have a financial plan in place that is updated daily based on market fluctuations and real estate changes, business valuations, etc., we highly encourage you to take the time to work with an advisor and put one in place.
Why is Rebalancing so important during big market selloffs and gains?
Rebalancing your portfolio is very crucial during big market moves. Why? If you have a 60/40 allocation (60% equities / 40% fixed income), big market moves in either of these asset classes can dramatically change this allocation. If the 60% in equities (due to equity selloff) gets reduced to 45%-50%, when equities recover it typically takes longer to recover, as you did not have the same
