Sometimes the answers you NEED to hear are not the answers you WANT to hear.
I can promise you when your financial advisor uses any of these to explain what she thinks is best for you and your family, she is not dismissing your question and concern that led to the answer. In fact, it’s the opposite. She’s trying to help you through whatever is going on at that time (now it’s coronavirus, falling Treasury yields, and an oil price war–who knows what it will be in the future) and avoid making an emotional decision that could lead to more harm than good.
In this post I’m making a lot of assumptions: I’m assuming you have a financial advisor who has helped you build a financial plan. I’m assuming you’ve discussed your goals with your financial advisor to help build that financial plan. I’m assuming you are invested in a diversified portfolio and are not trying to pick stocks (not that stock picking can’t work—it’s just harder IMO). And I’m assuming that you trust your financial advisor.
With that being said, let’s take a look at some of the most common answers that you have probably grown tired of hearing—just because you’ve grown tired of them, doesn’t mean they aren’t right.
“Stay the course”
This is a favorite for financial advisors; it could also be “stick with your plan”. However your advisor chooses to convey this message, it’s an important one. Too often individuals want to make changes to their portfolios in response to short term headlines or market moves. The recommendation to stay the course is a friendly reminder that if your long term goals have not changed, then there is probably little reason to make a change to your portfolio, which is built for the long term. There is a good chance that your portfolio is diversified and includes investments like bonds, money market funds, or cash that are designed to help soften the blow of falling markets and provide the income or liquidity you might need while markets recover. The “safety” you are seeking is already in your portfolio, so deviating from your plan is probably not necessary. In addition, if the change of course includes sitting on the sidelines until things calm down, your plan now has to try to get back in the market at the right time, which is hard to do. This is a well-intentioned plan, but very difficult to execute because the same emotions that caused you to get out of the market will make it hard for you to pull the trigger to get back in.
In my experience, either directly with my clients or from talking with other advisors, deviating from a financial plan rarely works out in the long run.
“This time isn’t different”
During The Great Financial Crisis I remember asking myself, “Is this time different?”, meaning are we not going to bounce back from this? Is the U.S. economy and financial system destined for failure? With hindsight, we all know how the story played out, but in the moment it was very scary and easy to think that the outcome would be different—that we would not recover. With information at the tips of our fingers, a lack of verification of “information” that is distributed via social media, and the emotions that we all feel around money, it’s very easy to get caught up in doomsday stories that sound logical, but in reality, won’t play out. This time (whatever it might be) isn’t different—we may not know when it will end, how quickly we will bounce back, or what the catalyst might be for the turnaround, but things will turn—they always do.
“The losses are only on paper—not realized until you sell”
Ugh. Your advisor probably hates saying this more than you hate hearing it. BUT, it’s true. I will admit it’s probably not the most comforting thing to hear, and I try to avoid saying this as much as possible, but it is worth reminding clients that if you have a diversified portfolio—60/40, 70/30 ,80/20 of mutual funds and ETFs there is a very high likelihood that your portfolio will recover. The key is to be in a position to not have to sell—this includes mentally and emotionally being able to withstand a drawdown and financially being able to avoid selling to spend the proceeds on living expenses.
And FWIW, the same statement can be used if the market is screaming higher—your gains are only gains on paper and are not realized until you sell them, which is a good case for rebalancing regularly. You probably don’t hear this side of the statement because no one calls in concerned they are making TOO much money.
You may also be told, “sometimes the best action is inaction”. Another statement that in the moment probably does not bring very much comfort. Inaction is not a part of our DNA. When we see danger, we run. When we feel discomfort, we eliminate whatever is causing discomfort. What are you supposed to do if you come across a bear in the wilderness? Nothing! We’re told to stand still and not move—I’ve never come across a bear, but I’ve got to imagine that standing still and doing nothing in front of a bear is extremely hard to do. But, the alternative—taking action and running away is likely to lead to the bear chasing you down.
Doing nothing goes against our genetic makeup. Which is why this reminder is so valuable.
Sidenote: I do think that it is possible to do a little “something” to scratch that itch of taking action; but that “something” should not be an action large enough to prevent your plan from continuing forward.
“Corrections are normal”
“Correction” could be replaced with “bear market” or “recessions”—they are all a normal part of the business and market cycles. It’s important that you do not misconstrue this answer to mean that corrections are enjoyable. Your advisor is not suggesting that you should welcome the next correction. Instead, it’s a reminder that market declines are a part of investing. As some would say, they are the price of admission to long term returns above inflation—returns you will need for your financial plan to help you reach your goals.
You may also get some statistics that accompany this statement—how often corrections occur, on average how long they last, and on average how steep the average correction decline is. Much like the original answer, these stats are provided to add perspective—as an investor, you should expect (and probably have experienced) corrections. We may not know when they will occur, but we know they will and we know they will recover—a correction is not something unexpected.
“Don’t look at your statements”
If you know the market is not doing very well and seeing a negative number on your statement is going to bring anxiety or stress to your life, then avoid opening your statements. Not forever, but just for the short term. Again, if you have a diversified portfolio there is a very high likelihood that your portfolio will recover–if you allow it to. If you must know how you’re portfolio is doing, instead of looking at your statement by yourself, call your financial advisor and ask. By calling your advisor, you’ll not only get the update you want, but you will also get some reassurance (and probably some of the answers we’re breaking down) that your portfolio is where it should be and that your plan is still in place.
“The media is focused on selling ads, not your best interests”
The mainstream media is not in the business of helping you make sound financial decisions—they are in the business of selling advertising. And fear sells. So whether it’s “Markets In Turmoil” or doomsday guests, during tough markets you will tend to see and hear more negative headlines and segments because that’s what grabs the public’s attention.
While we’re discussing the mainstream media, they go to the extreme when markets are strong. Rather than it just being “fear sells” it should be “sensationalism” sells. When you’re watching or reading traditional media outlets, not just financial, but all media, keep in mind the motives of the networks and guests.
“Reminder of your financial plan, investment policy, and long term goals”
This has been touched on in some of the other answers, but it’s worth a reminder of its own. If you are working with a financial advisor, you should have a financial plan based on your personal goals that guide your portfolio. While there is no perfect financial planning software—that would require a crystal ball—the software your financial advisor is using the best technology available to forecast what your plan looks like under a variety of scenarios; it’s not perfect, but by continuously reviewing your plan and updating it for changes in goals and life, it’s the best way to monitor your progress toward your goals.
Your plan, combined with the relationship with your financial advisor, should provide the confidence to “stay the course”. 🙂
It’s important that you know that with these answers, and others like them, your financial advisor is not trying to minimize your concerns—at least they should not be. In my 15 years as a financial advisor, these answers and reminders have been the best advice I’ve given to my clients, even if it was hard to give and I knew they didn’t want to hear them. But our job as your financial advisor is not to tell you what you want to hear, but to tell you what you need to hear.
Disclaimer: Nothing on this blog should be considered advice, or recommendations. If you have questions pertaining to your individual situation you should consult your financial advisor. For all of the disclaimers, please see my disclaimers page.