Okay let’s say you decided to be your own financial advisor and you’re a TERRIBLE timer of the markets. You diligently saved up your money from paycheck to paycheck. Like a wealth manager ninja, you’ve been discipline and carefully budgeted your expenses month after month and now you have a nice little lump sum of money.
You’ve read about the stock market and how much money people are making and how you don’t need to be a rocket scientist to do well.
You’ve asked questions of people you respect about investing and they told you, “Invest and you will thank me later”. They also said, “Just remember no matter what, have a long-term approach and just ride out the bad times”.
Timing: The Stock Market Crisis
It’s August 2007 and you’re ready to begin your journey with investing and take all your hard-earned savings and plunk it into an S&P 500 Index ETF. You’re so excited for the future!
BOOM! The global financial crisis explodes and over the next 18 months your patience, emotions and trust are all tested to the extremes. You’re timing could not have been any worse. You’re tested on a weekly and sometimes daily basis to resist the human instinct of selling and giving into the “flight to safety” idea.
Riding Out The Bad Market
Here’s the good part of the story. You hung in there and it’s August 2017, 10 years later. You’re looking back at your investment that has produced a +7.8% annualized (per year) return. Source: CNBC Michael Santoli
Okay so these aren’t the greatest stock market returns of all time. With a better approach to implementing your money you could have improved your long-term yearly average return to just under 10%. But still you successfully navigated the rough waters and were rewarded with very nice returns.
Portfolio Stress Test
The point of this story is really pretty simple. If you want to be successful with your investments you have to be patient. In hindsight, it seems rather easy to stay patient and ride out the bad markets but that would be disrespectful to how scary and easy it is to flee the markets when the headlines are a downhill snowball of bad news.
A Wealth Manager’s Solution
Replay this rainy day scenario often. Stress test your portfolio ahead of time so you can create clear expectations for what your portfolio looks like on the bad days before they happen.
This can make all the difference, helping you to be better equipped to ride out the market downturns and prosper with your long-term investments.
Jarrod Adams Investing LLC
10130 Perimeter Parkway
Charlotte, NC 28216
SOURCES: Michael Santoli CNBC, https://www.cnbc.com/2017/08/09/even-if-you-bought-just-as-the-global-financial-crisis-erupted-10-years-ago.html