This is the time of year that most of us get a flu shot in order to inoculate ourselves against a full blown case of the flu. This is also a time where we work with clients to inoculate them from the “ media flu”. Every single day the media spouts on and on about when to buy and when to sell. Mostly, media pundits operate with just two available options: moving in and out of the market using market timing or pulling completely out of the market. If you follow their “advice”, you can easily contract “media flu”. Symptoms of this include increased anxiety about each and every wrinkle in the financial markets and focusing on forecasts for the very near future.
A Financial Drill
One way to avoid “media flu” is to prepare for the future by revisiting past experiences, what might be called a “financial fire drill”. This starts by reviewing long-term investment expectations and then follows with context for the inevitable temporary decline. Stock market declines happen frequently, yet the future highs are built upon these declines. The market always recovers.
A” financial fire drill” can help prepare for the emotions that come into play when account values fall. To a large extent, progress towards long-term financial goals is dependent upon decisions that are made during these periods. The attached article titled The Heat of the Fire contains details of previous global market declines dating back to the 1970”s. The charts depict the overall decline both in time and percentages. While all of the big declines vary, one constant is that the account values are positive five years after each low.
Most of us have never experienced a real fire but we do have actual experience with serious market declines. The emotions that are unleashed during these pullbacks can easily undo a well-considered financial plan. The “media flu” can strike during these times and amplify anxiety about the direction of the markets. Remember, protecting long-term purchasing power is the ultimate goal. The best opportunity to do that is by staying invested through the inevitable “heat of the fire”. Ready for a real conversation?