Stay the Course
On June 7th the DOW 30 was at 34,655. At the close of June 18th it was at 33,282. In a period of 11 days it had fallen 1,373 points. On that day I sent out a letter to my clients, titled “Perspective & the Financial Markets.” An abbreviated version of that letter is below:
“Clients,
Part of the value of working with a financial planner and investment advisor is gaining their perspective during volatile markets and uncertain economic times. As I write this the Dow Jones is down 477 points, the S&P 500 is down 38 points, and the NASDAQ is down 67 points.
When many see the market moving down, they become concerned, panic, and many times sell their holdings out of fear of losing money. This is exactly the wrong decision and why many people lose money in their portfolios, lock in losses, and miss out on future gains.
The graphic to the left (omitted) illustrates the financial impact and benefit of working with a financial advisor. This is why you’ve made the decision to work with me. One of the biggest impacts that I can make on your financial future is keeping you invested in the market. Providing you with a historical and long-term perspective is arguably the most valuable service. Keeping you invested for the “long haul” truly allows your financial decisions of saving and investing your hard earned money to pay off.
Behavioral Finance is an area of study that dives into the emotions that can both positively and negatively effect financial decisions. It is one of the aspects that I evaluate when I have you complete your investor profile questionnaires and ask you all the questions that I do when I’m trying to understand your goals, objectives, and feelings about money.
Those of you that have had me do financial plans for you will recognize the below graphic (omitted). I put this in EVERY financial plan because I believe it is one of the clearest illustrations of why you should stay invested and not be driven by your emotions when the market drops.
This graphic illustrates that the market, in this case the S&P 500, moves up and down. The green upward lines represent “bull markets” while the red downward lines represent the declines or “bear markets.” As you can see, the bull markets are significantly greater in both duration and degree than the bear markets. People tend to react more intensely and quickly to bear markets leading to both financial losses and opportunity costs.
I would offer that you should look at the red declines as “sales” in the financial markets and welcome them. Today is a short sale. By no means am I saying that we are entering a bear market, but I hope that we do!
For those of you at or nearing retirement you can make investment decisions to minimize the impact of a bear market but understand that the longest bear market was 35 months and only resulted in a 14% decline. It was followed by an 80% return that lasted 43 months!
Staying the course and not allowing your emotions to drive your financial decisions will always produce the best results. Remember, I will always tell you what you need to hear, but not necessarily what you want to hear!”
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The point of my letter was to keep a larger perspective and embrace the down market days or even trends as buying opportunities. To illustrate the advice in my letter, by July 2nd, only two weeks later, the DOW 30 had risen to 34,796! It had recovered all the “losses” and had actually gained 139 points. For those clients that followed my advice and “went shopping during the sale” they made money instead of losing money.
Today, the markets have opened after the holiday weekend. As I write this the DOW 30 is down 359 points. My advice remains the same, stay the course.
Sincerely,
Ty B. Kopke
