Sharks in the Water

It wouldn’t be the start of beach season without the papers’ nearly daily headlines of a shark attack or sighting. As soon as we think about getting in the water, sightings start making headlines. Yet we still venture in to the water, knowing the risks and enjoying the rewards.

Much like shark headlines, financial markets have been getting a fair (or unfair depending how you look at it) share of column inches. Yes, world markets are down from where they were in late September, and yes it could be down even more by the time you read this……..but we knew this could happen, in fact we need it to happen. Much like swimming at the beach, we invest our money understanding the risk but enjoying the rewards.

No one knew how the market would perform this year. No one knows how the market will perform next year. No one knows if stocks will be higher or lower. Indeed, even though the probabilities favour a positive outcome, no one knows if stocks will be higher or lower in 5 years.

We DO know that, according to Forbes, “since 1945…there have been 77 market drops between 5% and 10%...and 27 corrections between 10% and 20%” We know that market corrections are a feature, not a bug, required to get good long-term performance. A single dollar invested in the US market in January 1945 would have grown to $2,658 (!) by the start of December (S&P 500 index).

We do know that during these corrections, there will be a host of “experts” in the paper, on business TV, blogs, magazines, podcasts and radio warning investors that THIS is the big one. That stocks are heading dramatically lower, and that they should get out now, while they still can. Yet we survived the GFC, Dot Com Bubble, 1987 Crash and other seemingly catastrophic events.

We know that given the way we are wired, many investors will react emotionally and heed these warnings and sell their holdings, saying they will “wait until the smoke clears” before they return to the market. This often leads investors to forget the #1 rule of investing “buy low, sell high”.

We know that over time, most of these investors will not return to the market until well after the bottom, usually when stocks have already dramatically increased in value.

We know that, no matter how much stocks drop, they will always come back and make new highs. That’s been the story since the late 1700s.

We know that this cycle will likely repeat itself, with variations, for the rest of our days, and probably many following.

While it is understandable to be wary of sharks in the water, we know the risks are low and keep diving in. While it is understandable to be anxious about drops in the market, keep perspective, stick to a plan and consider the long-term outcomes.

So instead of reading the headlines about things you can’t control, why not tune out the noise, focus on what you can control and enjoy Christmas secure in the knowledge that we’ve seen these things before and have always made it out the other side.

Merry Christmas from all of us at Strategic Wealth Management