Over the past few weeks, the Dow hit yet another new high of 21,000, the market matched a record 12 day streak of gains and Snap Inc. (NYSE: SNAP) went public with a near $30 billion IPO despite no one over the age of 30 really understanding what it is. Consider also that we just celebrated the 8th birthday of the bull market dating back to 2009 and it's understandable that many investors are feeling like this is all too good to be true. Perhaps we are due for a retreat. Perhaps not. After all, it would have been just as easy at any time over the last 8 years to cite reasons why the market couldn't keep going up. Remember how you felt when news broke about Brexit? How calm were you as U.S. Government debt was downgraded, as oil prices plunged towards $20 a barrel or as the bull market eclipsed the 5, then 6, then 7 year mark?
Want more "evidence?" My twitter feed recently featured a sponsored ad revealing Mike Tyson as the spokesperson for a new brokerage firm touting the benefits of 400x leverage and a message of trust. Yep, that Mike Tyson who was once on top of the sports world as the youngest ever Heavy Weight Champion of the World who’s better known these days as a bankrupted convicted felon with a taste for facial tattoos and other boxer’s ears. Predictably, the humorous retweets calling his endorsement of anything even remotely related to financial services as either a sign of the apocalypse or the ultimate proof that the market had run too far were endless.
Would I ever condone tweets as evidence of anything actionable in regards to the stock market? Of course not. But since this one was so off the wall, maybe it can be useful as a timely reminder of just how futile the search for a crystal ball can be. Worrying about threats, no matter how certain or silly they appear to be, and panicking with our hard earned savings each time a new one arises is a proven recipe for failure. There is plenty of data available illustrating the damage emotions can inflict on investment portfolios. Maybe we’d be better served though, to look no further than the aforementioned “Iron Mike” for some words of wisdom on how to best handle the unexpected.
“Everyone has a plan ‘till they get punched in the mouth” - Mike Tyson
Not exactly Confucius or Shakespeare, but these words cross over from the boxing ring into the investment arena perfectly. As a financial advisor, one of our most important jobs is to remind clients that the most persistent threat they face as investors is themselves. The Fed isn’t a threat to portfolios. Politics aren’t a threat to portfolios. Neither is North Korea or China or artificial intelligence or climate change. Could the market’s reaction to any of those land a strong “punch in the mouth” to you and your nest egg? Of course, and it will hurt when it happens. You’ll likely find yourself searching for the quickest way out and wondering why you ever stepped between the ropes of the investment world in the first place. Chances are, that will be the worst thing you can do and the worst time to do it.
I don’t believe the once “baddest man on the planet” was suggesting that when you get hit you retreat to the corner and throw in the towel. Just as a boxer wouldn’t do that, investors shouldn’t race to abandon their holdings for cash or seek out other ill-timed "solutions" because those feel safest at the time. What matters most is how we react when we’re hit hardest. Having, and following, a plan is easy when our investments are on the rise. It’s when things get tough that it’s most important not to abandon the plan agreed upon when heads were clear…rather than reacting while dazed and scared.
Take the opportunity to call your advisor if you’re getting worn down by the jabs or haymakers thrown by the market. It will help to review your plan and see if any changes are necessary before you catch a punch that you can’t recover from emotionally. The reassurance that any good plan is set up to withstand whatever the market throws at it will go a long way in helping you through rough rounds. Don’t have a plan? Then cover up and be prepared to throw in that towel.
