One of our responsibilities as your investment adviser is to help you put market news in its proper perspective, especially when the media is reporting that investors are fleeing to safety amid falling oil prices, a continuing slide in bank shares and Fed Chairman Janet Yellen’s words of caution around interest rates last week.
If you are OK with ignoring the current headlines and going about your business according to your carefully developed investment policy statement, feel free to continue as you were. Unless you would like to revisit your own risk tolerances or individual financial goals, none of our advice about how to manage your personal portfolio has changed. If you look back to our previous posts, you’ll see that we still advocate staying the course.
If, on the other hand, you are wondering whether you should adjust your investments in light of current events, we’d like to offer some context on why withstanding today’s bad market news can actually translate into good news for you and your investments, at least in the long run.
Remember those conversations we’ve had about your willingness, ability and need to tolerate market risks in pursuit of expected rewards? This week’s market performance serves as an excellent Exhibit A on just what that risk feels like when it happens. It hurts, it can be scary and it’s not any fun at all. But if these sorts of realized risks never occurred, sometimes severely, the market could not be expected to deliver long-term premium returns to those who are willing to ride out the pain.
It might help to think of investing in the markets as being like going to the dentist. It’s unlikely you enjoy getting your teeth cleaned, having a cavity filled or undergoing a root canal. But these unpleasant experiences are necessary to preserve if not improve on your winning smile. Just as your dentist offers pain mitigation strategies as appropriate, diversification is our prescribed pain-killing medicine to help lessen, if not eliminate the hurt when it occurs.
Big-picture strategy aside, we understand that you may still have questions about the unfolding news that is grabbing current headlines. While we don’t let breaking financial and economic news overly influence our long-term advice, we do find the information fascinating. It also continues to contribute to our ongoing understanding of how markets operate over time. If we can share our insights on these or other questions you may have about what makes the markets tick the way they do, we would be happy to hold that conversation with you any time.
As always, if we can be of service to you, your family or your financial well-being, please feel free to contact us.