Preparation is Key During Market Ebbs and Flows
December 13, 2018
About every other year, a wicked cocktail of warm air and strong winds gather force off the coast of Africa, makes its way across the Atlantic evolving into a hurricane and smashes into the East Coast, reminding us all just how little control we have over Mother Nature. It’s never a question of ‘if’ but of ‘when’ the next storm is approaching.
The best we can do is adequately prepare for the inevitable that we know is coming. For any diversified long-term investor, the past few months have reminded us all just how little control we have over financial markets. Being prepared and having a team of financial professionals around you is our best defense while we wait out the storm.
After an uncharacteristically calm year in 2017, as measured by day to day fluctuations in the stock markets across the world, 2018 has been an emotional rollercoaster. To put this year in perspective, the largest decline of 2017 in the S&P 500 index was a mere 3%. Nearly 23 years have passed since a decline that small in a full calendar year has transpired. As of today, we’ve witnessed a decline of about 11% from the prior peak. Some might be wondering where this year might compare to the historical average. Since 1980, the average fluctuation has been 14%. That’s hardly reassuring for those of us who have seen their portfolio balances decline throughout the year with what feels like no end in sight. To add fuel to the fire, a properly diversified long-term portfolio includes non-US companies. Those indexes are down nearly 20% from their prior peaks, which some define as a bear market.
With today’s sensational headlines it has never been more difficult to maintain your composure, particularly for those close to or in their retirement years. While there’s no way to immunize ourselves from the emotional toll this can take on us, there are things we can do to minimize the stress:
- Have a well thought out financial plan upon which a sound investment strategy is based. While a sound investment strategy can’t guarantee success, it does provide a rational basis for why and how your portfolio was constructed. Before making changes, it can be helpful to discuss your plan with your advisor to be sure you’re both in agreement and comfortable with the present course.
- Maintain adequate cash reserves. If you’re retired, we typically recommend approximately two years of your spending net of other income sources in cash or equivalents (we call these ‘Short Term’ assets).
- Turn off the news. This is easier said than done but if headlines and unsettling reports are a trigger for your anxiety levels to spike, you may be better served not setting yourself up for the inevitable stress that usually follows.
- Be optimistic. We believe the best days of our civilization are ahead of us. That doesn’t mean we haven’t and we won’t face seemingly insurmountable obstacles. But history says that our resilience to better our lives stands the test of time.
At SC&H Financial, we remain steadfast in our commitment to ensuring your continued confidence in our ability to serve you. There are few times it becomes as important as when we’re in the midst of one of those storms. As we look towards 2019 and beyond, we remain optimistic about the future and the future of our clients.
If you have any questions about the current market, please contact us.
Advisory Services offered through SC&H Financial Advisors, Inc. SC&H Financial Advisors, Inc. is a wholly owned subsidiary of SC&H Group, Inc.
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