Every Time Is Different, But This Time Is Not
So why is it that many clients balk at rebalancing and some even panic? It’s the narratives flying around everywhere, including in their own heads. The thinking goes, “Sure, every time in the past, markets have recovered but” (here it comes) “this time is different.”
The corona-crash was different. Technically, every time is different. The way the tech bubble and bust played out was historically unique in many ways. The 2008 financial crisis was unprecedented. The havoc wreaked by Covid bore little resemblance to the way the swine flu, Ebola, bird flu or Covid’s cousin SARS affected the world.
I was genuinely surprised at the speed of the recovery but I was not at all surprised that it recovered, and did so before my clients would need to make any adjustments to their plans. Not surprised one bit.
Take Command Of Your News Intake
The legitimate journalists of the world are in the business of bringing things to our attention that are new and noteworthy. They tell the story using facts and differing viewpoints. Unfortunately, as we have all seen, there’s a lot of news that has an agenda or is erroneous.
This has always been an issue, but the number of outlets competing for our attention and the provocative tactics they use to get it have created an environment in which very smart people can think and do very dumb things.
I live on Florida’s Space Coast. The area is crawling with rocket scientists. For nearly 30 years, I have assumed everyone in my meetings is smarter than I am. Yet so many people I talk to have gone from wanting to keep their assets working for them for the rest of their lives to obsessing about what an account statement might say next month. They have gone from focusing on what they can control to worrying about things they cannot, like what a political figure might say or do.
There has in fact been plenty of disturbing news these past 12 months, from Covid to protests to the election and the raid on the U.S. Capitol. More bad news will come. That’s life. People have every right to be disturbed by these things. I am too. It is easy to see them as obstacles that cannot be managed or overcome and represent a clear and present danger to markets.
But it’s a mistake for prudent investors to throw out the long-term perspective that’s offered them such a spectacular record of success just because they’re listening to the news of the day and suddenly want to adopt the short time frame of speculators. The results are likely to be less than ideal.
We’ve done well preventing that mistake by getting clients to see that their news intake is one of those controllable items. It takes some coaching, but they can learn to be picky about what news they listen to, when they digest it and, most important, what they do with it when it’s disturbing.
Planning Is Key
In every period of turmoil there are some who don’t learn the lessons. I am optimistic that some of our own clients who didn’t quite understand the timelessness aspect of investing before will understand it now.
The past year was a wild and stressful ride. So stressful that a lot of people are looking to adopt a less news-centric existence and approach to the markets. That’s great. Being a long-term investor is not easy. But being a speculator is even harder and more stressful.
But the speculation impulse always returns. It’s been 20 years since the day-trading craze ended—with poor results for those who dabbled in it. Is a new generation about to gamble away their assets by trading securities or crypto or by looking for the next GameStop squeeze?
Our clients’ portfolios were created, by contrast, through the financial planning process. That made it easier for them to know what to do in the face of turmoil. Having seen the process work yet again, they are better prepared for the next time. At least until they start thinking that the next time will be different, of course.
Dan Moisand, CFP, practices in Melbourne, Fla. You can reach him at [email protected].