The importance of a long term perspective
March 11, 2020
In the past few weeks, we’ve seen market volatility ramp up dramatically, prompted initially by uncertainty over the coronavirus epidemic and its far-reaching impact. Other developments have since entered the picture, including oil prices tumbling.
This confluence of events has continued to stoke fears among many investors worldwide, and the common thread here is unknowability: we simply don’t know where, when or how these phenomena will play out. And in my experience, the thing in this world that markets hate and fear the most is uncertainty. We have no control over the uncertainty; we can and should have perfect control over how we respond to it.
Or, ideally, how we don’t respond. The last thing in the world that long-term, goal-focused investors like myself do when the whole world is selling is – you guessed it – sell.
I expect you have some important questions of your own:
Will my investments be impacted and to what extent?
Will this diminish my retirement savings?
Rest assured that we continuously monitor market activity to effectively manage risk to your portfolio. The short answer to these key questions is that your investments will likely be negatively impacted in the short term; but we recommend you keep sight of your longer-term objectives and stay the course.
I want to highlight two critical strategies that are essential to riding out any market dips, however daunting:
A diversified portfolio. Incorporating different asset classes, industry sectors and regions is critically important to ensure your exposure to market losses is limited.
A long-term perspective. Remaining invested over a longer time frame is the best approach to achieving your financial goals. It will also help you understand that any market dip (termed a correction when the drop is over 10%) is short term and that markets always bounce back.
Keep in mind that the most recent bull market has been in effect for the past 11 years. The S&P 500 bottomed at 676 (close) on March 9, 2009. From then until February 19, it rose 400% not including dividends – that’s a 528% total return. Arguably, it pays to stay invested over the long term.
We understand that market gyrations can trigger anxiety. Our team is always here to talk to address any concerns you may have.