Broker Check
The Smart Money

The Smart Money

| January 08, 2019

We know markets fluctuate up and down. That ups and downs are a feature of investing, not a bug.  See the history of the US Bear and Bull markets since 1926 below.

But our brains didn't evolve to tolerate fear without dramatic action.  "Fight or flight" is the way we are wired.  Since we can't fight with the market, the other option is to run away.

We know from careful studying that this is usually the wrong thing to do.  Investments are one of the only things where the demand can seem to go down as the prices drop.

Conversations with clients during the tough times have revealed an interesting divergence of behaviors.

  • The wealthier people seem to have a higher tolerance for market volatility.  They have seen it before and, while not welcoming losses, understand that it is how investing works.  They wouldn't have amassed wealth as well without this wisdom.
  • Conversely, people that know they don't have enough saved for their retirement tend to be much more on edge and risk-averse. They already knew they were on the cusp, now things look even more dire.  The tragedy of it is panicking and selling when the stocks are down is usually the opposite of what you should be doing.  Buying high and selling low is how to lose money, not make it.

Making an informed and conscious choice to be in the “smart money camp” is easier when you have a solid footing on investing facts.

The market is up over 300% from the lows ten years ago, and it tends to drop 14% annually from top to bottom but still ending the year up 70% of the time.  2018 saw about a 20% drop, which was slightly over average, but I would say with the great run up and lack of volatility we were well overdue.

We also know that market drops are not only expected but impossible to consistently predict.  Which is why if you are close to or already spending your investment assets we allocate to lower risk investments like bonds and alternatives.  The way to plan for downturns is to have “safer” money, often to the degree of five to twenty years’ worth depending on your specific situation.  This can allow us to hold onto more volatile stock investments when they are in a downturn and utilize the safer money to still provide for your lifestyle.  Furthermore, while the market was going up over the past ten years, we have been rebalancing and selling stocks to help make sure your safety cushion keeps getting refilled with market gains. 

Stocks are currently fair priced based on earnings, we have low inflation, interest rate hikes are nearing completion, and our economy is on track to keep growing for all of 2019.

We are primarily concerned about a trade war with China. We need them, and they need us. Hopefully, this issue can be resolved soon.  There are a myriad of other factors happening today, and it’s important not to rely on one single thing to forecast where things will end up.  It’s tempting to take mental shortcuts with investing conclusions, but usually not good for meeting your goals. 

Please call or email us if you would like to discuss recent market movements, or better yet to see if you are still on track to meet your financial goals.

Thank you for taking a look at the facts about disciplined and wise investing.


This article represents opinions of the authors and not those of their firm and are subject to change from time to time, and do not constitute a recommendation to purchase and sale any security nor to engage in any particular investment or legal strategy. The information contained here has been obtained from sources believed to be reliable but cannot be guaranteed for accuracy.  Image from