As the global financial markets continue their volatile and mostly downward ways, I have been speaking with clients in an attempt to calm their nerves.
Earlier this week, I went with my oldest daughter to the Under-18 European Athletic Championships. It was a great event, and kudos to the Jerusalem Municipality, which used our tax money to make a significant upgrade to the stadium at Givat Ram.
In one of the early qualifying rounds for the women’s 100-meter hurdles, one of the favorites crashed out. She hit two hurdles straight on and that was it. The agony of defeat. All her training went down the drain in about six seconds.
She was devastated, crying uncontrollably and hugging her coach. After a few minutes, her coach tried to console her, and told her that she was young and would have more opportunities to win the European Championships and other elite track meets. The coach stressed that she had run one of the fastest times all year, and that regardless of the outcome of this particular meet, she was still one of the fastest teens in the world.
The coach finished her pep talk by saying the runner had won many races in the past and would win more in the future, that everyone can have a bad day and even the best athlete’s crash out sometimes. My daughter told me how bad she felt for her. I was more fascinated by her coach and the way she successfully calmed her down.
Global financial markets have performed much like this athlete. Markets had a solid run higher, but since the beginning of the year, have dropped significantly. As the global financial markets continue their volatile and mostly downward ways, I have been speaking with clients in an attempt to calm their nerves.
The way I have been trying to explain the recent market drop is that markets usually move two steps forward and one (sometimes large) step back.
What should you do in the face of market volatility?
The most important step you can take is to make sure your portfolio is allocated in a way that meets your financial goals and needs. If it is too aggressive, you may want to sell. If too conservative, take advantage of the market drop to “buy low” and add stock exposure to your portfolio. If everything is allocated properly, the best thing to do is nothing. Just stay the course.
Sallie Krawcheck, former CFO at Citigroup and founder and CEO of Ellevest, wrote, “We’d all love for the market to go on a tear forever, reaching record highs and blowing minds. But the truth is, downturns are a reality, particularly if you are a long-term investor.”
A few years ago, Morningstar came out with a research report titled “The importance of staying invested.” In it, they looked at what would have happened had you invested $100,000 in at the beginning of 2007. Had you sold everything at the bottom of the market crash in early ‘09 and then sat out a year until things “calmed down,” you would have about $127,000 by 2017. Not bad. But had you stay invested through the entire financial crisis and not sold anything by the beginning of 2017, you would have $195,000!
When dealing with your money, you need to concentrate on your long-term goals.
Stay calm. Markets go up and down, but the best way to make money over the long-term, is just to be properly allocated and stay the course.
Aaron Katsman is the author of Retirement GPS: How to Navigate Your Way to A Secure Financial Future with Global Investing. www.gpsinvestor.com; aaron@lighthousecapital.co.il. The information contained in this article reflects the opinion of the author and not necessarily the opinion of Portfolio Resources Group, Inc. or its affiliates.