This question really got me thinking. Investors are bombarded every day with opinions (informed or otherwise), data (informative or misleading), and news (real or fake). As a result, many investors have panicked. When the coronavirus pandemic resolves and the markets rebound, what will they wish they had done?
Here are my answers:
1. They’ll wish they had focused on the long-term instead of the short.
Investing, by its very nature, is a long-term activity. Even people who are close to retirement are still investing for the long-term. That’s why, while bear markets are uncomfortable, they’re also somewhat overrated. Markets fall over days, weeks, and sometimes, months. But history has shown that they rise over the course of years and decades, which is good for us, because we’ll be investing for years to come!
Investors who forget this, who think that what’s happening now will happen always, are falling prey to recency bias. And that never ends well.
2. They’ll wish they had double-checked our asset allocation before all this started.
Asset allocation – the process of spreading your investments across different asset classes – is one of the most important things an investor can do to balance risk versus reward. During bear markets, the investors who get burned the most are the ones who “put all their eggs in one basket.” That’s because they didn’t stop to think what would happen if they let their basket drop.
Investors who have spread their money across a variety of asset classes – who have truly diversified – know they have plenty of eggs left to cook with.
3. They’ll wish they hadn’t tried to take shortcuts.
Think of the last time you were caught in a traffic jam. You’re sitting there, idling in traffic, when suddenly, the lane next to you starts to move. So, you quickly merge into that lane, only to get stuck again. Meanwhile, the lane you were just in is now moving…and all the cars that were once behind you are now speeding ahead.
Maddening, isn’t it?
When bear markets hit, investors often panic. Instead of sticking to their long-term strategy, they sell, sell, sell – at a time when everyone is selling. This means they are selling low. In other words, they try to change lanes in the middle of a traffic jam.
But again, we’re in this for the long-term. The road we’re on stretches for miles. Sometimes, the speed limit is 75 miles per hour. Sometimes, it’s only 25. Trying to take shortcuts just leads to longer delays.
4. They’ll wish they had positioned themselves to take advantage of when the markets rebound.
It happened after the Great Depression. It happened after the stock market crash of ’87. It happened after the dot-com bubble burst. It happened after the financial crisis of 2008. It happened after the fourth quarter of 2018. The markets recovered – and climbed to new heights.
Just as bear markets are inevitable, so too are bull markets. Investors who don’t think long-term, who try to take shortcuts, who don’t try to balance risk and reward, will not be positioned to take advantage of the next one. Which means that when this is all over and the markets rebound, when they look over at the lane next to them and see people zooming ahead, they’ll be wishing they had done things differently.
When this is all over, we won’t need to look back and regret. All we’ll need to do is keep looking forward.
No matter what headlines you see over the coming weeks and months, always remember that my team and I are here for you. We’re here to answer your questions. We’re here to keep an eye on your money. We’re here to help you hold to your long-term dreams and plans. So, if there’s ever anything more we can do, please don’t hesitate to let us know.
Because we’re here.
June 2020
