On Panic
The last few months have been incredibly destabilizing. I mean this from the obvious perspective of global trade, but also from the less obvious perspective of our collective psyches. I remember February – it felt like the US was preparing for some sort of invasion of Canada – my body felt like it was preparing for war. Then came “Liberation Day”. Stocks tanked. Things got scary.
As would be expected, when the world feels like it’s falling apart, my job becomes more difficult. Clients and non-clients alike, approach me constantly. I’m not panicking, I just want to know that everything will be OK. And its more destructive cousin, I wonder if we should go into cash and wait for things to stabilize? As most financial advisors will attest, the job of preventing clients from going in to cash can be daunting. I have no proof that everything will be OK, but over the long term, it hasn’t made sense to go into cash in about 100 years.
We’re now in to May. Tariffs have been suspended, trade deals have been (and are being) negotiated. The S&P just turned positive on the year, and things generally look much less dire than they did a couple months ago. The collective panic that forced people out of the market two months ago, has completely subsided. If you panic sold the S&P, you locked in a 15-20% loss, and missed a 20ish% gain over the last six weeks.
It's important to spell this out. I had no visibility on this outcome when I advised people not to sell. I just had 100 years of historical data, and an understanding of how markets work. The decision to go into cash is a decision that should be made based on your time horizon and your overall risk tolerance. Not based on what you think your stocks might do over the next three weeks. Going in to cash with markets down is a really good way of undoing years worth of gains.
Do you know you’ll be needing money next year? Well that’s an excellent reason to take some risk off the table. Is this volatility keeping you up at night? It’s possible that your risk tolerance has gone down over time. But if your risk tolerance has changed, it’s changed in both bad times and good times.
I sometimes think it would be better if investments behaved more like real estate. You don’t get a minute by minute update of what your house is worth. Just a vague idea -“the market is bad, but it’ll probably be better later”. But if you’re a person who follows your investments closely, you can quantify to the dollar how much your investments have dropped in value. Oh my goodness I’ve just lost a full year’s income in the last four weeks!
The moral of the story? Personally I know I need to watch the news less. I generally advise clients to also watch their investments less (obviously not an option for me). But I’ll leave you with the classic 100 year story of the S&P 500. It spans a world war, a cold war, two generational financial meltdowns, 20ish% inflation…anything you want to throw at it. If you didn’t watch the friggin news, you were happy. To the tune of (approximately) a 2,150,000% return.
Reach out if you need to talk.
See also: 50 things I do as a financial advisor
The comments contained herein are a general discussion of certain issues intended as general information only and should not be relied upon as tax or legal advice. Please obtain independent professional advice, in the context of your particular circumstances. This post was written by Tim Ziegler, Financial Advisor with Tim Ziegler Wealth Management, a registered trade name with Investia Financial Services Inc., and does not necessarily reflect the opinion of Investia Financial Services Inc. The information contained in this post comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any securities.