Stay The Course
Stay the course is boring financial advice, and people hate it, especially when stocks fall. Doing nothing is challenging; it's hard, and it feels like a cop-out. When stocks fall, clients want action; they want to rearrange the deck chairs and take control of the situation, but it could do more harm than good.
Most financial planners recommend a buy-and-hold strategy when managing money which is simple when stocks rise but challenging when they fall. It's a popular recommendation because stocks rise about three-quarters of the time, and no one can time the market.
Pilots set their coordinates for their final destination and rarely diverge from their route unless necessary. They will change course to avoid storms or turbulence, but, for the most part, they keep the nose of their plane headed toward their target. This past summer, my wife and I drove thousands of miles visiting several national parks. Each day we'd set our GPS for the next park, and we did not deviate from the directions and arrived safely each time.
I've gotten in trouble whenever I ignore a trail map while hiking, biking, or skiing. When my daughter was about ten, we went skiing at Crested Butte, and I decided to take her on an unmarked shortcut back to the ski lift. It did not go well. We got stuck in waist-deep powder and could not move. We had to forge our path; it took a long time before we could return to the trail. It was a scary ordeal.
A financial plan will help guide you to your destination by quantifying your goals, assessing your risk tolerance, and measuring your time horizon. It will lead you through a perilous market and treacherous economy. When markets are falling, and clients are worried about losing money, a financial plan can bring peace. The likely recommendation from the advisor is to remain calm and stay the course because of the plan.
Investors have liquidated nearly $100 billion from growth-equity mutual funds over the past year, likely transferring the money to a money market fund or savings account. This strategy might be safe in the near term, but it could prove disastrous over time. The report ended on September 30, 2022, and since then, the Dow Jones has risen nearly 13%, its best monthly performance in more than 35 years! To get above-average returns, you need to stay in the market. As I've told clients, "If you're not on the plane when it takes off, you're not getting on." Selling from a position of fear is not wise. If your plans change, then alter your investment strategy. However, if you don't need your money and your goals remain intact, stay the course!
I recently met with an individual who is interviewing several financial advisors. He is looking for one who can trade the hottest and most popular sectors, in this case, energy and commodities. I informed him that we select a buy-and-hold portfolio based on his financial goals and do not trade sectors or chase securities. I then showed him a 10-year chart of how the Dow Jones Industrial Average destroyed commodities. He was not impressed and is convinced that there is an advisor out there somewhere who can time the market. I wished him well.
It's a difficult market; returns stink, but stocks recover. Be patient, follow your plan, and stay the course.
What kind of man would live where there is no daring? I don't believe in taking foolish chances, but nothing can be accomplished without taking any chance at all." — Charles A. Lindbergh
October 28, 2022
Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM's custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.
Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren't suitable for every investor.
 YCHARTS Fund Flow Report – 9/30/2022