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It's About the Chop and How We Handle It

It's About the Chop and How We Handle It

| December 26, 2018

I was on an airplane yesterday and want to share an experience I had that reminded me of my value to you, our clients.  My family and I took off and within 20 minutes the pilot came over the intercom and told us to expect some air pockets and chop over the next hour or so.  He reminded us to keep our seatbelts on at all times.  I was in clear view of the flight crew; they didn’t even flinch at the comments.  About 30 minutes later, the flight crew got up and began the in-flight service.  Just then, the chop really started to increase in intensity.  The pilot came on over the intercom and requested the flight attendants to stop what they were doing and to immediately return to their seats for their safety.  I watched the flight attendants; they calmly shut down the service and moved the carts back to storage and sat down as if nothing had happened.  At no time did they show any signs of stress or panic.  Why?   Well for starters; this is a normal part of the flying experience, I even reminded myself of that.  Now imagine how I would have felt if the flight crew did the exact opposite of what I saw them do.  What if they screamed with panic and abandoned the drink carts and ran to their seats and strapped in and began sobbing?  How would that of made my confidence is this situation different?  How would you feel if that happened to you?   

Here is my reminder; we look to those we can trust for calm.  I trust the flight crew knows how to handle and communicate properly during difficult flying conditions.  Everyone around me stayed calm because the flight crew stayed calm and guess what, we made it to our destination, safely.  You can trust me that I am remaining calm as we deal with the current market volatility. 

With the continued volatility, I wanted to ensure we keep some things in perspective with the following points.

1. Having a down year is completely normal. It’s been a while and we may have forgotten what it is like to have a good sell off.   Every time the market goes down, there is always a “really good reason”.  They say “this time is different”, except it never is.  While current conditions are difficult, the media would prefer you feel fearful.  They make every downward move seem like it is extraordinary and worse… permanent.  It is important to note that the media’s job is not to help you invest wisely; it is to get you to tune in!  If you are concerned or fearful, it’s because you might be watching/reading the media.  The media behaves like the flight attendant or worse, the pilot who jumped out of the plane while screaming “good luck folks”.  I call it financial pornography.  It’s addictive and destructive.  This is the time to stay focused on the long-term objectives of your investment plan which already has accounted for strategies to deal with all types of volatility.

2. We are diversified for a reason.  As a reminder, the markets, like flight turbulence, are unpredictable.  We don’t put a bunch of money in bonds because we expect the market to go up forever.  We do it because we know there will be times when the market goes down, like it is now.  Significant sell offs (even much worse than we have had) provide opportunities to buy high quality stocks at low prices.  The bonds provide the cash necessary to do so.  When we buy high quality stocks at low prices, we have the potential to earn much larger returns over time.  Lastly, we are diversified because markets don’t cause losses, investors do.  It is true markets fluctuations cause asset prices to vary – sometimes by quite a bit.  Yet the market (as a whole) does not cause losses.  Volatility is part of the nature, always has been and always will be.  Market losses come from bad investor behavior.  It comes from investors bailing on sound strategies because they can’t stop looking or turn away from the financial media. 

3. Your lifestyle is not dependent on the stock market.  Your account is set up to weather the storms and help us take advantage of others’ fear for your ultimate financial gain.  Your current lifestyle is completely unaffected by the volatility…unless you are listening to the media and/or looking at account statements.  Don’t allow your mood to be influenced by fluctuations in stock prices.  As your advisor, I am aware of what is going on.  I see the facts, but I don’t allow the news to do my thinking or analysis.  We are emotional beings – none of us is exempt of that, myself included.  The best thing to do during difficult times is to trust your plan, understand the recent moves don’t change your lifestyle and tune it out. **By the way, there have been several studies showing that the best performance by investors were by those that forgot they had accounts or had passed way. In other words, they were accounts that remained invested in all types of markets.

4. The next move is to rebalance.   If we get a greater downturn from here, we will be rebalancing and hence, buying good long-term assets at low prices.  If your investment strategy is to buy low and sell high, then rebalancing is the next move.  If you would prefer to sell if things get worse, then your investment strategy is to “sell low and buy high”.  While selling may be emotionally desirable in the short-term, it has significant costs in the long term.

In closing, I am always as close as the nearest email, phone, or face to face visit.  Let’s stay in touch and talk about what I have expressed above.  We are all on this airplane ride together and I am here to serve you, regardless of turbulence.