Weathering the Storm With Greater Conviction

We have had quite a volatile start to 2022, and there is no assurance the volatility is done. Performance wise, this was the worst yearly start to the stock market (Jan-Apr) since 1939. But that isn’t it. According to the Wall Street Journal, this is the worst start for the bond market since 1842. I didn’t even know financial data went back that far.

Many investors hold a portfolio of securities that are diversified across various equities and bonds. Bonds are generally held as a buffer during stock market selloffs. But in 2022, not only did they not go up when stock markets went down, they went down as well…a lot. The diversified investor faced a double whammy – significant losses in both stocks and bonds.

Temptations We Face

Investors are constantly tempted to change their plan, and not just in bad times. Even when times are good, investors may be tempted to go after what is soaring. In the past few years, we have had fake cryptocurrencies, meme stocks, and a few COVID plays that “went to the moon.” There were stories of kids (probably still living in their parent’s basement) striking it rich. This can frustrate the disciplined investor who has made money, but not that kind of money!

We can be influenced to abandon our plan to chase something performing better. After all, that superior return can help us retire earlier and/or enhance our retirement lifestyle. And we are certainly influenced to sell when times are bad. We are ingrained to protect what we have. Whether that is our home, our kids, or our investment portfolio. The overriding feeling is that we can’t, in good conscience, sit idly as our portfolio is decimated.

Uncertainty Fuels the Fire

The greatest challenge is that we don’t know what the future holds. We don’t know if this is just a correction or the start to a brutal bear market. If we knew the market would go down 40% from its highs, and we knew when it would turn, we could protect our assets and then put them back to work when it became safe. But, of course, we don’t know. And neither do the experts. Wishing we could know doesn’t change the fact. The markets can’t be predicted.

Investors that “protect” themselves by going to cash eliminate the risk of losing money tomorrow, but greatly increase the risk of reaching their goals. This is because no one knows when the bottom will occur. When the market inevitably rebounds, is that just a short-term rally in a bear market or the start of a bull market? When will you know? What will give you the “all clear” signal? At what point will you realize that the train (bull market) has left the station and you aren’t on board?

Uncertainty causes anguish because of these unanswerable questions. So what is an investor to do?

Get Conviction in Your Plan

Investors need to develop conviction in their investment strategy and portfolio. Whether markets are going up or down, there is always something performing better than what you own. But investing isn’t about owning those things that do best every single moment – that is impossible. Investing is about owning a portfolio of securities that you can hold in good times and bad – because you believe in it. You know what you own, why you own it, and don’t care what the market is doing.

Helping investors develop conviction in the investment process and strategy is one of the most effective uses of an advisor’s time. Spending a good deal of time on this upfront, and at every review meeting, will likely reduce the amount of concerned emails and calls. It will reduce how many times you need to talk your clients off the ledge. And, perhaps of greatest value, it will help your client not get concerned when markets inevitably disappoint.


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