Daniel L. Bishop
January 28, 2022
Fear, Uncertainty, and Doubt (FUD) has crept into most markets - caused by a reaction to central bank inflation, high debt levels, weak economic growth, geopolitical tensions, incompetent political parties, and continual bureaucratic intervention.
Nine days before Black Monday (the October 28, 1929 crash that spurred The Great Depression) Yale economist Irving Fisher said “stock prices have reached what looks like a permanently high plateau.”
It’s one of the worst market readings ever.
Of course, the markets had a very rough decade. Nobody knows what that market is going to do over three days or three years… but we have a pretty good idea of what will happen over three decades.
Time in the market is wise, timing the market is human - but foolish. We should be prepared for anything, that is resilience.
Major market movements present opportunities to reconnect with the basics.
We’re in a bubble caused by Quantitative Easing. We may have a Wild Rumpus. We may have to hunker down and or HODL. Nobody knows what is going to happen next, and that is why we go back to basics and first principle thinking.
Here are questions we encourage investors to think through as you take the uncertainty as a means to grow in your thinking, awareness, and emotional maturity:
• Has anything changed on your personal financial plan?
• What is this specific money invested for? (What values, intentions, purposes, or goals does it support?)
• Have your goals changed? (We should always match our investments to specific goals)
• What is the timeline? (Your investment and goal should always be connected to a timeline, even in an alternative investment like crypto)
• Is your real Risk Preference at the moment a lot lower than your Risk Tolerance when thinking about a possibility?
• Is it a lot scarier now that it is happening?
• Is it time to rebalance your portfolio? (You can also rebalance by contributing more)
• Is it a good time to put money in a Roth account?
• Is it a good time to invest a little more?
• Does this change in market conditions show you that you need some liquidity?
• Are you sure you want to sell into weakness and realize what is right now probably a temporary paper loss?
• Asset class diversification helps protect against many other returns you don’t see like the sequence of return risk. (Yes, you need bonds, cash, and other non “growth” assets. Retirees need even more fixed income. You draw from the well that is currently full)
• If you have a lot of individual investments you should be looking at tax-loss harvesting, your investment manager should have already done it.
• Crypto markets are highly volatile, that is why they can return so much. High risk, high reward - but high risk.
Market timing is usually a fool’s game going up and down. The Financial Porn Industry (i.e. news) wants to generate fear to keep you watching.
We want to be mostly invested, but with good liquidity. See this article for further detail.