Three Factors at Work in the Financial Market

Lifestyle, goals and spending are what drive a successful investor’s attitude in volatile markets.

Whew! What a stretch in the markets. During record-breaking volatility both UP and DOWN I have been on the phone continuously with clients and friends for 2-3 weeks. The BEST part is that 99% of the phone calls have been positive in confirming:

  • Goals
  • Asset Allocation
  • …and various conversations about beverage of choice.
person using macbook air on table
Lifestyle, goals and spending are what drive a successful investor’s attitude in volatile markets.

You may say, “BOR-ing”. But amidst these conversations have been several insightful points of data. Here are several:

  • Universal recognition of the concept of three (3) major factors – largely out of our control – at work in the financial markets:
  1. The exogenous threat of the Coronavirus and its spread,
  2. Political divisiveness in the US amidst Primary elections AND the policy issues being brought forth,
  3. A still recent large UP-trend in both equity and bond markets suggesting a possible cyclical market correction,
  • (Bonus 4th factor) A “surprise” 50 basis point rate cut by the Federal Reserve on Tuesday of this week.
  • 99% (if not 100%) of the clients and friends with whom I have spoken are taking this latest volatility in stride. This does not mean that they do not care. Mostly, we have been in discussion repeatedly from year to year about their goals and the time frame for those goals, which have largely not changed.
  • The amount of cash (and/or real estate or diversified investment holdings) held by my clients and friends – in nearly every situation – adds a comfort level and keeps events in perspective.

Again, you may say “BOR-ing”. But think about this point of data:

If an investor were to have panicked and sold at or near the lows of the 7-day, 14% decline (thinking things could get worse) in the US markets between February 19th-28th, that investor would have missed out on the unpredictable 2-of-3 day 6% rebound from those lows*. That could have meant a $15,000 rebound (or more on a rebalance or buy on weakness) on a $250,000 stock portfolio or 401k account. Or a $30,000+ rebound on $500k or $60,000+ on a $1 million stock portfolio.

I talk a big game about not getting emotional amidst market swings, but we are human. It can be distracting and difficult not to get “sucked in” by any number of Factors. A solid response found in the data collected from simply talking to a broad array of people over the past three weeks is that:

  • focus on three factors largely within our control – lifestyle, goals and spending – are what drive a successful investor’s attitude in volatile markets.

*S&P 500 performance.

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