We are living in unprecedented times; even skilled investors have fallen into their emotions. You would not be human if you did not experience just a little bit of fear during these times. The best thing you can do at this time is not to give in to your emotions. The second best thing you can do is review your financial plan.
Nick Murray says: "In my experience, all successful long-term investors are continuously acting on a plan. All the failed investors I've ever encountered up close were continually reacting to current events – and always the wrong way." Do not act on your fear.
Warren Buffet tells us, "to be greedy when others are fearful."
If we go back in time and look at the stock market, we see an upward trend. A one-sided mountain if you will. The market has rewarded those who stay in and those who do not act on emotion.
Here are a few things to keep in mind:
- Your portfolio may not go to $0.00: Unless you are trying to day trade and time the market. The responsible investor knows that this, too, shall pass and that patience will be rewarded.
- Know your Plan B: All investors big and small need to have a backup plan. Where are you going to draw your income from during times of extreme volatility? What is your strategy for staying in the market? Maybe you have decided to create a cash emergency fund. Perhaps you've decided to ignore your current account balance and ride it out. Investors that have a long-term financial plan routinely obtain their financial goals.
- Know your portfolio: Do you know how your current portfolio is allocated? It may be allocated more towards equities or fixed income. Knowing how your portfolio is invested has a significant impact on your emotions and your next move.
- Know your risk tolerance: You need to know how much risk you are willing to take. Some people are natural risk-takers; their emotions may not be triggered by the ups and downs of the stock market. Others may be more conservative. Know how much risk you are willing to take and factor it into your overall portfolio.
- Finally, please turn off the TV: Many people see the decline of the Dow Jones Industrial Average on the evening news and assume their portfolio is down. Your portfolio is probably not 100% correlated to the DJIA; that's the big rectangle in the bottom right-hand corner of your TV screen. Know how your investments are allocated and their correlation to what you see on the news. I bet there is a significant difference.
It's easy to experience fear when your retirement nest egg is down 20% in just over a month, and I understand that your emotions are telling you to get out before it gets worse. But I also know that you can be rewarded for your patience. Follow your plan and be a responsible investor. "A goal without a plan is just a wish" - Antoine de Saint-Exupéry.
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The views stated in this letter are not necessarily the opinion of Cetera Advisor Networks LLC and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change with or without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results. Investors cannot invest directly in indexes. The performance of any index is not indicative of the performance of any investment and does not take into account the effects of inflation and the fees and expenses associated with investing.