Market Uncertainty: Perceptions & Reality
If you’re like the rest of us you’re feeling a little anxious right now. Rest assured, you’re not alone. Some clients feel comfortable staying the course, others see it as a buying opportunity. Still others are compelled to sell everything because they want to “get out before the bottom”, or have a hard time stomaching each day. Being an investor involves having a long term plan. Just as important is the ability to navigate short term periods of intense distress. To do this, you must understand your feelings, your situation, and the facts allowing you to develop an action plan. Working with a competent Financial Advisor will help you with this step.
The first step is to understand our feelings because they shape our reality and help us find comfort. Our perception of any situation is directly related to our experiences in life and our current beliefs structure. This belief structure forms our biases. One bias we all share in common is loss aversion bias. As investors we do a great job handling things on the way up, yet our tolerance for loss is far less. This is compounded when we see others suffering, the loss of life, and fear of loss in the future. Even with a solid plan, you may feel defeated and this point of pain is where investors may stand to lose the most. From January 1995 - December 2017, 6 of the 10 best days in the market occurred within two weeks of the 10 worst days. Furthermore, if you missed the 10 best days during this period, your returns would be reduced by 38% versus being fulled invested. (JP Morgan Asset Management)
Uncertainty and fear of the unknown also fuel discomfort and action. Think of the current environment as four pillars. Your personal situation is the first pillar. Having a plan, a trusted partner, and fluid communication are the base upon which everything else is built. The virus, fiscal policy, and monetary policy are the other three pillars. Each day we become more informed about the virus and the unknown is becoming more known. Globally there are stimulus packages being proposed and implemented by federal governments, each of which are designed to help their citizens, and spark the economy. In each area, the more you know, the less uncertain you feel, and the less you fear.
From March 13, 2020 through today March 27, 2020 the S&P 500 has returned -5.8% (Source: FactSet). While not great, the decline is tolerable. During this same time the S&P fell 12% in a day, fell 12% over another 3 day period, then rose 15% the next 3 days. Understanding your feelings and the facts allow for the next two steps; action, and time. Sometimes the best action is inaction. Your action might simply be turning off the TV, not looking at your account everyday, saving a little more, or finding someone to talk to. Action gives a feeling of control, and the more in control you feel, the more confident you are. Lastly time; the homeostatic nature of life allows us to adjust and feel comfortable with each passing day.
Feeling uneasy right now is normal and peace of mind is different for everyone. At Executive Wealth Management our goal is to proactively meet our clients where they need us to be, to help them through every market, and every season of life. By now, you should have heard from your advisor and unless you unsubscribed, received several e-mails keeping you informed about the markets and how we are navigating through this time. If you haven’t, please give us a call!