For anyone who prefers to listen, this is a recording of this week’s stack.
As I write this, I am assuming the market continues to shock and awe many investors. Put into motion from the imposed tariffs last week, a massive self-off and decline in the stock market began. There are many theories about the current policy and its purposes, but at the end of the day, markets hate uncertainty and these tariffs are nothing but uncertainty. Anyone who tells you they know how this plays out in the short term does not know, and is being dishonest about predicting short-term market behavior.
Subscribed
If you've worked with me for long enough, you know my advice will not change. The most recent immediate shock to the system was 2020—I did not flinch then, and I will not flinch now. My advice is always consistent, and often not what you want to hear; you want to feel like someone is "doing" something. That is much of the noise you see online and in the news—people pretending they are going to do something that will somehow outsmart the billions of inputs going into our market. One key difference is, others do not have a financial stake in your success. You and I, however, are in the same boat and it is vital that your outcomes are as beneficial to you as possible, because my business' income is reliant on it. And, as I've told you to invest, I am invested. My advice is in your best interest, my best interest, and the only advice that works—courage now is the key to continuing to grow your money in the long-term.
In the coming weeks, if the market continues to panic, I will write more about the fundamentals, why it isn't different this time, the bright spots—and the risk. But for now, I want to give you the advice of what you are going "to do" to get through this current period.
All Investors
If you are holding equities, you are going to ride them to the bottom. Remain entirely invested. Missing the best recovery days is the worst thing you can do; there is no way to time when to come back into the market. Historically, 7 of the 10 best days in the market occur within 15 days of the 10 worst days.
Another thing to keep in mind: the S&P 500 has returned an average of 10% per year since 1928 and has done so despite an average intra-year drawdown of 16%, and often drawdowns that are much worse. The lesson? Volatility doesn’t equal a permanent financial loss unless you sell.
Subscribed
Those 5 Years or Less from Retirement
Your goal: use this market pain as a lesson to plan more successfully for your looming retirement.
Now is the time to plan how you will handle market downturns during your retirement. In these coming years, begin planning for a cash-reserve strategy—a strategy that allows you to continue your lifestyle in down markets without selling your holdings.
Besides planning and revisiting your retirement projections, do not do anything with your current holdings and keep investing in the market.
If retirement is imminent, consider your lifestyle costs, and if you can sustain them on cash or other assets not requiring you to sell positions. Make sure that even with these downturns, you are still on track—and if you've done the right planning, you're likely in an okay situation (even if it feels daunting). Remember, up until now, your retirement plan should not have assumed 10-11% returns indefinitely with no downside.
Anyone More than 5 Years from Retirement
Your goal: use this downturn to remind yourself you will have many more downturns before you are retired. Begin shaping your reactions to these shocks now, so when it gets closer to retirement, you already know what to do.
Don't even spend your mental energy thinking about what is happening in your retirement portfolio—it is unlikely you even remember this event in five years, let alone by the time you get to retirement. Keep investing, keep building your skill set, and ignore the noise.
Anyone In Retirement
Your goal: avoid selling positions in a down market as much as possible.
Now is the time to avoid selling positions in a down market to fund your lifestyle often times this means turning to cash. If you are a client of mine, you have some level of cash-reserve planning already in place and we have already designated cash positions for this very purpose. If you are taking regular distributions, we will pause selling any equities and use the cash we have stashed for this purpose until the market stabilizes and/or returns to positive territory.
If you are not a client, and have not implemented a cash reserve plan, you may need to seriously consider evaluating your spending and your total picture. Do some analysis to see how you can avoid selling any equities under the current conditions. The key now is to avoid selling as much as possible during a down market. You may need to reduce your spending, or consider other means of sustaining yourself during the downturn.
Anyone With Excess Cash
Your goal: buy the dip.
If you have cash you've had sitting on the sidelines for a while—now is the time to consider putting it into the market. You may have a few weeks of volatility, but down markets are an excellent time to invest. Often, going against the herd is the best way to build wealth.
What Happens Next
Market declines happen and will continue to happen every decade or so. They can seem very sudden, and often a response to some change in the status quo, as in this case. Downside risk is the price investors pay for long-term performance. The great news is if you are a client, any projections we've run have more than taken into account market declines (we run a VERY conservative return rate), so your long-term plan is still on track.
My advice in a nutshell: don't sell anything, buy if you can, and if you can turn off the news, and avoid social media, you will be much better off. If I could, I would entirely eliminate current news from my life—the truth is, the only reason I pay any attention to the short-term is I have to be ready to assure clients.
One thing you can rely on, I will be reminding you to continue moving forward, and I will be here when the dust settles and we are on to a new challenge or opportunity.
Subscribed
Share this post