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Unfortunately, this proactive approach does not translate well to the realm of investments. Extensive research has revealed that there is no single solution to achieve superior performance. Engaging in more research or frequently trading your portfolio almost always leads to suboptimal outcomes. The game of investments revolves around consistency and time, rather than trying to time the market.
As advisors, our primary objective is to help clients remain focused on their long-term goals, despite the noise and distractions that surround them. This is indeed akin to doing God’s work and keeping people from harming themselves. By emphasizing consistency in investment strategies and emphasizing the importance of a goals-based approach, we can steer clients towards more favorable results.
“The world is driven by envy, not by greed” -Charlie Munger
We've all experienced that familiar sensation of hearing about a distant relative or coworker who struck gold with a stock or cryptocurrency investment, rapidly amassing substantial wealth. Likewise, we've encountered individuals who miraculously managed to exit the market entirely just before a significant downturn. It's hard to overlook these extreme scenarios and resist the thought of "if they can do it, I can too."
Over the past three years, we've witnessed both ends of this spectrum.
In 2020, when news regarding the Coronavirus outbreak surfaced, the financial markets plunged into a state of panic. Investors rushed to exit their positions, seeking refuge in anything that appeared to be safe. Consequently, equity markets experienced significant declines, ranging from 30 to 40%, depending on the specific index. Multiple trading days witnessed fluctuations of 10% or more, amplifying the sense of uncertainty and fear in the market. The possibility of a severe economic depression was discussed, and genuine trepidation gripped the markets.
However, this period of extreme volatility lasted just over a month, as the Government and the Federal Reserve intervened. On March 20th, 2020, the S&P reached its lowest point and subsequently rebounded, more than doubling in value over the next two years. Those who succumbed to the urge to take control of their investments and exit the equity markets in March have significantly underperformed.
During this time, amidst the rapid appreciation of all asset classes, it seemed as though "everyone" had transformed into expert investors and stock pickers. Conversations revolved around various crypto trading strategies or newfound meme stocks that tripled in value within a matter of days. From real estate to cryptocurrencies and meme stocks, all risk assets exhibited a high degree of correlation, fueling a sense of exuberance in the market
Then, it ended…
When the Federal Reserve initiated interest rate hikes and concerns of an impending recession surfaced, the stock market experienced a significant decline. The chart provided illustrates the before and after effects of this period. Unless you had investments in these specific stocks before their 2020 returns, it is highly likely that you ended up with lower returns or incurred losses
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Charlie Bilello compound as of 5/18/22
In an instant, all the investment expertise that seemed to prevail during the bull market disappeared.
“In some ways markets are predictable in that human nature is the one constant across all environments. This is why the pendulum is constantly swinging from manias to panics.” -Ben Carlson
It is evident that the excitement surrounding investing has dwindled, and it is no longer considered the "cool" thing to do. As advisors, we relish periods of time like this. Akin to all the crazies leaving the beach, the markets are left to the real long term investors.
While some individuals can endure the turbulent market swings, many find it challenging to cope with such volatility. As I previously mentioned, investing is primarily about time rather than timing. The chart provided below exemplifies this concept. If you had invested $5,000 into the S&P 500 at its inception and continued to invest $500 per month, the results are quite intriguing.
Notably, following the financial crisis in 2008, your invested funds would have been in the negative territory based on your contributions after 14 years of investing. However, if you had exited the markets and given up on the process, you would have missed out significantly
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The crucial point to take away from all of this is that investing is a challenging endeavor that requires patience and time. There is no one-size-fits-all solution or guaranteed formula for success. Understanding that the journey will be filled with ups and downs, including moments of irrationality, is half the battle. Sometimes it feels uncomfortable if not downright scary. If it were easy, everyone would be rich.
Thanks for listening and more importantly, allowing us to be a part of your financial future.
Frank
Retirement Capital Advisors
800 Battery Ave SE The Battery, Suite 100 Atlanta, GA 30339
Office- 412-722-3795
Securities and Advisory Services offered through Commonwealth Financial Network®, member FINRA/ SIPC, a Registered Investment Adviser. Fixed insurance products and services are separate from and not offered through Commonwealth Financial Network
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