Nearly a year ago, at a time when Trump’s tariff announcements were shaking up the stock market, I had an interesting conversation with a friend of mine who’s not a client. I wanted to understand how he was thinking about his investments at that moment. What was his frame of mind, without any judgement.
His response stuck with me. I’m paraphrasing, but essentially it was this:
“Back in 2007 and 2008, I thought I should make a change to my portfolio but I never did. And I regretted that. This time, I want to be sure I’m being proactive so I won’t have any regrets.”
Having interacted with hundreds of clients during similar times, I know he’s not alone in thinking that changing your portfolio — what people see as “taking action” — is the only way to survive periods of market volatility.
While I wasn’t surprised by his response, he was surprised to hear my assessment: He did the right thing. He was better off not making a change. The losses have since been recovered, and he’s now in a better position than he would have been had he tried to make changes in an effort to “outsmart” the market — a tactic that almost always fails.
If you’re having similar thoughts as my friend now, maybe it’s time to reevaluate how you think about making changes to your investments and implement a proactive approach as opposed to a reactive one. There is a better time to “do something” than in the midst of a crisis.
Mentally Shifting Your View Of The Investment Experience
Investing tends to hit a lot of psychological buttons for people. You’ve worked hard for your money, and you want to make sure you don’t lose, yet, you want to make as much money as possible. I hear this all the time!
There’s always the chance for a big, life-changing win in the stock market, and sometimes we can’t help but chase it (FOMO). And on the flip side, we tend to run away the moment we see red on our portfolio dashboard.
We have to be doing one or the other — or at least it feels like that.
There’s nothing wrong with setting aside some money in your portfolio for the purpose of buying individual stocks you find intriguing with the hope of hitting it big. We have seen it happen. And there is nothing wrong with selling investments and making a change. But in most cases, across the board, the best thing to do after you’ve set up your portfolio is nothing (in terms of reacting to the market volatility). I like to say “If you do nothing, nothing happened.”
We understand that it’s difficult to stay the course under tough market conditions. So why do we advocate for doing nothing in response to market turmoil?
Historically, losses that occur during volatile times are recovered. Plus, selling stock comes with consequences. For one, it’s harder to get back in should you decide you want to. It can also put you in a difficult tax position. Losing money on the sale of a stock could mean owing a fair amount at tax season. All because you made an emotional decision based on current market news.
There is a time to make changes to your portfolio — but it has nothing to do with the markets themselves and everything to do with you.
When is it really time to take action?
In the conversation above, what my friend didn’t realize is that there actually is a reason for him to take action now; it just isn’t what he thinks it is.
He explained that his life had changed since that 2007/2008 time period and he was now on the cusp of retirement. That’s a real reason to take action. He now needs to be more conservative in his investments because, at this stage, avoiding big losses matters more than chasing high growth.
It’s the perfect time to think about making some adjustments so that when he does head into retirement, he’s invested correctly and does not have to lose sleep when the market goes down.
The difference is this: He’s making this change because his life circumstances have changed, not because of the market headlines.
Investment portfolios should be based on your life plan — a plan that reflects your assets, your family, your income, and your dreams. Whenever there’s a change in any of these elements, your portfolio should be adjusted as necessary to reflect your new reality.
In addition there are other ways to “do something” that could have a positive impact. Tax loss harvesting is a great strategy, rebalancing your portfolio “selling high and buying low,” dollar cost averaging or continuing to invest during down periods.
In other words, controlling what you can control and investing in a proactive, not reactive way.
Rattled by the “red” on your investment dashboard?When you see a red arrow indicating declining performance on your investment dashboard, it’s hard not to think that everything in your portfolio has decreased in value. But if your portfolio is diversified, risk is spread across different assets so that not everything falls at once.
Understanding how you’re invested helps you see past the single “red” number on your dashboard to get a clearer picture of how your portfolio is actually performing in relation to the market as a whole. You may not have as much exposure to the equity markets — which cause most of the volatility — as you think. |
Need help planning — and staying — the course?
It’s not easy to hold steady in the midst of market turmoil, but if you begin with a plan, doing nothing is actually doing something very proactive.
If you want help designing a portfolio that reflects your life — one you can feel confident about even in the tough times — talk to us at Curio Wealth. We’ll help you build something designed to let you sleep at night, knowing the important things are handled.
We’ll take care of what can be controlled: keeping costs low, managing for taxes, rebalancing when it matters, and fine-tuning along the way. That kind of steady, thoughtful maintenance will get you where you want to go no matter how rough the weather.
