By Eric Brotman
March 11, 2022
With everything going on in the world right now, there is a feeling of general unease blanketing our nation. While I cannot speak to the politics of foreign governments, I can mourn for the lives lost in the current struggles and share my thoughts on how I see the markets reacting.
We have been through tough markets before, and we’ll go through them again. The most important lesson we can learn from the past is to not repeat the same mistakes.
“It’s different this time.”
These are the words overheard every time there is a market correction, and they are both true and false.
True: the world events and news du jour precipitating each market correction creates a unique blend of circumstances.
But false: the responses to and best practices during and after a correction are not different this time. The fundamentals are unchanged. Regardless of the news headlines, all investors are still either buyers, holders, or sellers. The only thing different during today’s market correction versus prior periods of volatility is that we are each older than we were the last time this happened, so we may be at different stages of our financial lives.
The strategies and advice for this period of volatility are the same as the last time. If you are a buyer (adding to accounts regularly), stay the course and try to take advantage of the volatility. If you are a holder (neither adding to nor withdrawing from accounts), make sure you have no expected need for invested capital for the next five years and sit tight. If you are a seller (withdrawing from accounts regularly), make sure you have short-term and intermediate-term accounts which are positioned conservatively and allow your other longer-term accounts to stay fully invested.
We have been through tough markets before, and we’ll go through them again. The most important lesson we can learn from the past is to not repeat the same mistakes. Investors who took advantage of being buyers or resisted change as holders or sellers made out beautifully by staying put. Those investors who were positioned inappropriately or who were positioned responsibly but reacted emotionally suffered significant financial damage.
Don’t just do something, sit there.
That’s not a misprint. Sometimes the best advice is to do nothing–to not react to the news cycle day-to-day. Invariably, this is another opportunity to take that advice. If your portfolio is structured well, it should be able to withstand whatever comes our way. Take a deep breath and remember that this is a marathon, not a sprint, and do nothing.
We’re coming out of a two-year global pandemic with a recovering supply chain and pent-up consumer demand. The Russian actions in Ukraine are reprehensible and may impact energy prices and delay the economic recovery from the pandemic, but like all news stories this one will be the daily headline until it isn’t, and it will be replaced by something which feels “different this time” soon thereafter.
You can take the time to emotionally react to the news of the world, but I would advise you never to act emotionally regarding financial decisions.
If you do not feel your portfolio is structured to withstand market corrections, this may be a good time to speak with your financial advisor or to get a second opinion from a different one.