Welcome to the August edition of Top of Mind!
Investing is a long-term journey, but it’s how you navigate those brief, panicky moments in the market that can determine your success.
This month offered yet another reminder—kicking off with a sharp sell-off that left many investors feeling uneasy.
While the market has bounced back since then, it’s a good time to revisit the Do’s and Don’ts of down markets, just in case volatility picks up again.
We’ll also review recent changes we’ve made to portfolios in response to the market decline.
But first, let’s review the Don’ts.
Don’t: Pull the Plug
Nobody plans to sell their investments when the market is down. But in a moment of weakness, it can happen. If you ever find yourself reaching that point, your first step should be to give us a call! Let’s talk it over.
But more importantly, let’s work together to make sure you never reach that point of panic.
We’re always looking for new ways to help clients in this regard!
Recently, Brian attended a lecture at the Chautauqua Institution in New York by psychologist Dacher Keltner, who consulted on the hit Disney film Inside Out. His work explores human emotions in depth.
Keltner highlighted how time spent in nature can lead to better behavior. For example, one study showed that participants who gazed at tall trees in a city park were more likely to help someone in need than those who turned around to look at nearby buildings.
Yet, as far as we know, this concept hasn’t been applied to investing, where behavior is everything.
So, let’s give it a try!
Next time the market wobbles and anxiety creeps in, take a moment to relax in nature and reflect on your financial goals. You might find that your stress levels drop.
(We think they will.)
Below is a photo from a hike Brian took with his son at Chautauqua following the lecture. A beautiful setting!
Don’t: Time the Market
The temptation is strong—to try and maneuver your portfolio around every twist and turn in the market.
“I’ll sell now and wait for things to settle down before getting back in,” is how the thinking usually goes.
But in our experience, this rarely ends well. By the time things “settle down,” the market is typically higher. This leads to selling low and buying high—a recipe for disappointment.
The market is notoriously unpredictable over the short-term. Timing it is like playing chess with a pigeon—no matter how smart your strategy, the pigeon just knocks over the pieces and struts around as if it’s won.
Don’t play chess with pigeons!
Now, let’s discuss the Do’s.
Do: Nothing!
Doing nothing in response to a market decline is perfectly acceptable!
In fact, it is often the best approach. Markets have always rebounded from declines and gone on to reach new heights.
But let’s be honest—“doing nothing” can feel unsatisfying, especially when you’re itching to act.
Here’s how to think about it instead: Doing “nothing” is like a ship captain holding the wheel steady through a storm. It’s an active decision to stay the course, knowing that the storm will pass.
Sometimes, doing nothing is very much doing something!
Of course, this assumes your ship is headed in the right direction to begin with. If not, a course correction may be in order.
Do: Take Advantage
Buying low—using a market sell-off to purchase quality investments at discount prices—is an excellent approach.
It’s not always easy emotionally. Running into a burning building never is. But for a disciplined, long-term investor, the rewards can be substantial.
In fact, we took advantage of the market volatility in August to make strategic adjustments to the portfolios that we manage for clients under the Private Investment Management (PIM) program.
- We used the large sell-off in Big Technology stocks to tilt large-cap U.S. mutual fund holdings more toward technology companies at the center of the Artificial Intelligence revolution.
- We also repositioned bond portfolios toward mortgage-backed securities. With mortgage rates high and the stigma from the 2008 financial crisis still weighing on prices—despite this asset class being greatly transformed—we believe this is an attractive opportunity.
These changes weren’t applied to every client situation and portfolio. Taxes are a significant consideration. We continue to assess each client’s unique situation, looking for opportunities to capitalize on should another bout of volatility occur. This includes financial planning strategies such as tax-loss harvesting and Roth conversions.
In short, our Do’s and Don’ts evolve with the market, ensuring we’re always prepared for whatever comes next.
Thank you for reading this month’s Top of Mind!
As always, if you have any questions, we’re just a call or email away.
Warm regards,
Kurt, Cassidy, Ken, Teresa, Brian, and Jacque
All investments carry a level of risk, including loss of principal. PAST PERFORMANCE DOES NOT PREDICT FUTURE RESULTS.