Markets have been very volatile this fall, sliding 6.9% in October. We know it has caused you some anxiety.
One of the questions we all ask ourselves is: should I react to this or stick with my long-term conviction?
We all ask it, even though each one of us from a different place with different biases. Some of us are over confident, others too meek. While it’s nice to say that we can make an investment decision without emotion, the reality is that it’s not really possible.
Scott and I think it’s important to recognize that we have these emotional tendencies. One of these is the tendency to feel pain from a loss more acutely than pleasure from a gain. This drives people to sell too quickly when markets are going down.
Our role is to try to match our client’s tolerance for market volatility in exchange with potential returns. We do that through discussion and risk tolerance questionnaires. Having said that, it’s one thing to answer a theoretical question and another to see results in real life. As Mike Tyson has said: “Everyone has a plan until they get punched in the face.”
At times like these, when markets are down, our advice to you is to recognize that this is short term discomfort and that these corrections are part of a healthy market and not necessarily part of a larger economic downturn.
If you are stressed about your investments, we should talk about it. Our preference would be to continue to hold through this current pullback, but once we see a rebound, we should use that as an opportunity to de-risk the portfolio for the next round. Trading at times like this is often counterproductive to your long-term plan.