It’s on days like this…

2746.

March, 2019.

Wrinkled brow? I figured…that’s the idea.

2,787 is what the S&P 500 closed at today.

March 2019 is the last time that the index was around this same level.

The following is an important phrase that I believe will serve you well not only in investing but in all areas of life: events have no meaning other than the meaning we give them.

Think and reflect on this for a bit. Stuck in traffic? Most people get frustrated or mad that they’re going to be late for dinner or spend that much more time away from home. But we could use it as a time to make one more phone call to a friend that we haven’t talked to in a long time. We could also use it as a chance to catch up on another podcast, listen to another song, or start another audiobook. This is but one example that illustrates the apathetic nature of events.

Market corrections are not immune to this line of thinking. Market corrections have no meaning except to the meaning that we give them, and it’s through that filter that I wanted to share some thoughts and supporting information with you today because it’s after days like this that we need to be reminded about the importance of having your investment plan complement your financial plan and not only remembering the past but what the past has taught us and how we can use that perspective to remind us about the things that we have control over in the future.

It’s on days like this that we need to be reminded that if we didn’t have any problems with the S&P 500 at that level last year, we should look at what has been happening over the last handful of trading days as a way to get into our proverbial Delorean investment time machine and be able to purchase investments at their current prices from a year ago.

Your initial response might be “That’s all fine and good, Adam, but what about giving up the gains from the past year?” 

It’s on days like this that I’ll remind you that the average intra-year decline of the S&P 500 going back to 1970 is -15.7%. Today we dipped to -20% peak-to-trough. This would be a good time to remind you that the S&P 500 is still up 200% over the past 10 years (with dividends reinvested).

It’s on days like this that we need to be reminded that, if you’re continually investing in today’s market climate, are a younger investor, and have decades until you’re in a position to use/depend on your funds, you should view this as an opportunity to buy investments at a lower price. In shopping lingo, this is commonly called “a sale.” 

It’s on days like this that we need to be reminded that, if you’re close to or in retirement, it’s important to recognize that the plan you’ve created should have these corrections and market fluctuations built into your plan. Investors have to remember that portfolios should be constructed with the anticipation of market fluctuations…and throughout that time there are going to be the additional headwinds of inflation and withdrawals. To combat these headwinds investors still need to have a part of their portfolio positioned for growth. After all, climbers that reach the top of a mountain don’t just suck down all of their oxygen because they’ve summited; they still have the journey back down.

It’s on days like this that we still need to remind ourselves that the only way we shouldn’t be invested in the market is if we never expected stocks to go higher in the future. To illustrate this, let’s go back in time 25 years and look at what someone on the verge of retirement was thinking in March of 1995. Since then, the S&P 500 closed positive in 19 of those 25 years for a total/cumulative return of 890% and an annualized rate of return of 9.6% (both numbers assume dividends were reinvested).

It’s on days like this that we need to be reminded why we’ve discussed the limitations on how much clients can take out of their portfolio on a monthly and annualized basis. Exceeding a sustainable withdrawal rate stresses a portfolio in good times, but that stress can be amplified during market downturns. On the flip side, though, this is why part of the planning that we do for our clients is testing their portfolios during simulated drawdowns of 20% and more during retirement. Any plan that can’t sustain that test isn’t a solvent plan and it’s why we make sure that we keep a focus on the planning (verb) instead of the plan (noun) in an ongoing, planning-centric relationship.

It’s on days like this why we talk with investors about “portfolio guardrails.” This is the term I use when talking with clients about the range of returns we can expect 95% of the time during any six month period of time with the specific investments we’re using for their portfolio. The returns that we’ve experienced over the past two weeks are still within that range on even our most aggressive portfolio we use for our clients.

It’s on days like this that we must (yet again) remember that markets typically “take the stairs” on the way up and “the elevator” on the way down…though the last 5 trading days have made it feel like base or bungee jumping. There’s a correlation to the quickness of declines and the amplified anxiety that investors can feel.

It’s on days like this we need to remember that we don’t experience the average return when we invest. We earn the average by experiencing the journey.

It’s on days like this when we must be reminded about the significant gift that we have: the ability to think…or rather not the fact that we can think, but the fact that we have a choice of what to think about that can influence how we feel on a day-to-day basis.

I 100% respect and understand that the constant onslaught of pinging on our phones, conversations with co-workers, emails from various establishments, pontificating by politicians, and noise from the news can make it seem as if the walls are closing in. 

Remember, though, that all of these outlets (sans co-workers) have one job, and one job only: to sell. The product they sell is in large part fear but it’s masked through the description of news and information, though it has no context of your unique and individualized needs or plan. It’s all meant for attention and eyeballs. When access to anything is free we must remember that we (our attention) are the pawn in their game of chess.

The same experience(s) can mean two different things to two very different people. We all have a choice on what to think about and how to think about events in life. This is water.