I just got an email from a client who's moved out of state—maybe the most professionally gratifying email I've ever received. He said he was almost happy seeing their assets down by about 10%, and that he had me to thank for the fact they weren't down even more, as many of their neighbors' were.
Still, even the best of us can have our faith shaken. A colleague emailed me recently, asking how I felt about the investing model that I and over 100 other Alliance of Cambridge Advisors (ACA) members follow.
Here are excerpts from my reply to my colleague, explaining why I remain very confident.
These are the very times that separate us from all the rest—
—because so many of our competitors are capitulating. We don't do that, because we realize that success in the markets means staying in the market through the long term.
The panic is being fueled by the news business, which is by nature a day-to-day (lately a moment-to-moment) business. But investing in equities is a year-over-year-over-year process. So the news is the wrong yardstick to use to measure the success of our plans. It's like measuring the distance to the moon with a microscope.
I tell my clients that most advisors talk about 5 years as the time horizon for stocks—I say 10. Are they going to need assets 10 years or more from now? If so, they ought to think about how cheap stocks are now, and consider rebalancing to their target allocations while stocks are cheap.
Pretend for a moment that times are good. What would you tell a client about why it's important to leave "so much money" in bonds and cash? Times like these are why we have the bonds and cash. But it's usually easier to get them when times are good.
If they think stocks will stay low forever, let's show them the spreadsheet about long-term returns on different asset classes.
Hang in there. We plan precisely for times like these. Even if our plans were merely mediocre (they're not), such a plan carried out decisively is better than the "best" plan that you abandon during times of trouble.
These are exactly times for which our model works the best.
The only reason to change your plans is likely to be if something substantial has changed in your life. What's changed in the markets is likely of little relevance.
If your assets were allocated reasonably well before the market turmoil, there's no reason to abandon your long-range plans now. For those who have been following thoughtful plans, whether times are about to get worse or are about to get better, the strategy should still be about staying the course.
