If you type in “stock market crash/correction X year” into a search engine, you’ll have no trouble finding an article that speculates a market doomsday or a sure-fire bull run, but many of those predictions don’t come to be.
Because no crystal ball can forecast every minutia of market movements. But that doesn’t stop people from speculating and inviting high emotional reactions from readers.
As investors, it’s challenging to be inundated with headlines spelling out dozens of worst-case scenarios for your hard-earned money. Still, while you may not have control over the news cycle, you do have control over your response to it.
There are plenty of scare-tactic headlines that may cause doubt in your investing habits. But here are five concrete ways to help you find confidence in long-term investing.
1. Don’t Believe Everything You Hear
While incredible financial information can be available online, the digital age has also opened the floodgates for easy access to speculations and sensational headlines.
Here’s just a sample of some headlines we’ve come across when researching this article.
In 2010, the world held its breath for roughly 30 minutes while the stock market dipped then returned to typical levels. Why scare yourself over something temporary?
This 2011 headline highlights the sensational stock market losses when we know that the markets were actually flat that year.
After reading this headline, you may think 2012 was a horrible year for the markets, but that’s not true. The markets ended positive for the year!
But scary headlines are not just a thing of the past. Let’s look at examples that are a little more recent.
This website predicted steep market drops in early 2021, but as we know, the markets were relatively stable throughout Q1, and the stock market as a whole performed well over the year.
Here, analysts predict a stock market drop even though there haven’t been any concrete changes.
Unfortunately, news about stock market dips, crashes, and second-guesses riddle the internet backlog. But remember, you can almost always find a search result that supports or confirms your fears about the stock market.
What should you do instead of absorbing these negative highlights?
Try looking at the markets from a broader perspective. When you “zoom out,” you tend to see that the markets are far less sensational than in the short term.
In fact, since 1926, the markets have averaged a 10% return, according to an analysis by Dimensional Fund Advisors (DFA). And there’s been quite a lot of short-term market changes since the 1920s, to say the least!
This statistic supports the importance of consistent, long-term investing. While that headline may not be as flashy, it does represent the overall patterns that the market has demonstrated so far.
2. Tune Out The Noise
From news headlines to the office to social media to public forums to personal opinions and more, there’s no end to people’s ideas about the market’s behavior.
Most is simply conjecture that doesn’t come to fruition, but that doesn’t mean the words aren’t powerful. It could lead to widespread concern about your current investment plan and get you asking questions, like:
- Should you invest in the latest fad?
- Do you have too much money in the markets?
- Should you sell investments to have more cash?
Those questions could also lead you to make drastic decisions that could impact your future, like pulling money out of the market, changing your asset allocations, investing in “hot” stocks, etc.
Your long-term financial plan should be supported by more than speculation and guesswork. An excellent way to help ensure this noise doesn’t stand in the way of your success is to tune it out.
How can you do that?
You don’t need to read every article, watch every report, and listen to anyone who will talk about the subject. Because as you’ve seen above, there’s a news headline, analysis, and argument for just about every potential market situation.
DFA has an incredible video that highlights the value of tuning out the noise and centering your attention on the long-term.
While you want to be aware of what’s happening in the financial space, you don’t want it to consume your daily life. Distance can give you perspective and keep you from making hasty choices you may come to regret, like pulling money out of the market.
3. Create a Comprehensive Investment Plan
How can you effectively tune out the noise and regain confidence in your investment plan?
Make sure your investment plan is comprehensive. Here are a few ways to accomplish that goal.
- Know your risk tolerance (willingness to take risk) and your risk capacity (your ability and need to take risk)
- Understand your time horizon—how much time it takes to reach your goals. For example, you may want to retire in 20 years, build your dream home in 5, pay for your child’s college in 10, etc.
- Set meaningful goals. Your goals should inform the rest of your investment plan. A practice owner who wants to retire early, for example, will likely have a different plan than a surgeon who wants to transition into teaching part-time.
- Make an intentional asset allocation. Asset allocation represents the type of securities you invest in. Your risk profile, time horizon, and goals are all critical in informing the right strategy for you.
- Keep your eye on tax-efficient opportunities. As high earners, doctors tend to benefit from a tax planning strategy. Some ideas may include asset location—which securities perform best in particular accounts, like placing tax-inefficient assets in tax-sheltered accounts, tax-loss harvesting, Roth conversions, etc.
When you have a comprehensive plan, you aren’t beholden to the micro-market movements that set the internet aflame because your plan isn’t built for those movements; it’s built to support your long-term vision.
4. Focus On The Long-Term
Long-term investing is a central tenet to our investment philosophy at Vestia. While short-term market movements are volatile and unpredictable, larger macro movements have demonstrated a consistent pattern for success.
As referenced above, the S&P 500 has posted consistent 10% returns for nearly 100 years. But beyond past returns (as they can’t predict future results), long-term investing allows investors to take advantage of record market highs.
Even missing just a few of the market’s highest days can have a consequential impact on your overall returns. Let’s examine some unique research from the DAF on this subject.
They found that if you invested $1,000 in US stocks in 1990, you’d have about $20,451 today—over 30 years.
Now, what if you missed the S&P 500’s best day? Your return drops to $18,329.
Let’s say you missed 5 of the index’s best-performing days. That tanks your return to $12,917.
Their research highlights that there’s no way to predict or time the market’s best or worst days, but if you stay invested long-term, you set yourself (and your portfolio) up to take advantage of them when they come. Long-term investing is an excellent way to make disciplined, thoughtful financial choices.
Trust The Plan—A Case Study
We met with a potential client in 2011, an OBGYN who didn’t trust the market.
After analyzing his financial information, we realized that he had his entire, six-figure 401(k) in cash. When we inquired about this choice, he said he got nervous in 2008 and cashed out when the markets dropped.
Even though it had been three years and the markets had gone up, he still wasn’t willing to go back to the market given the uncertainty.
Unfortunately, he never became a client, and we didn’t have the opportunity to help him overcome his market fears and keep his investments working for him.
It might not always be easy to invest in the markets, but it does have a pretty good track record.
5. Remember Your “Why.”
When staying invested feels like a challenge, remember why you are investing in the first place—retire early, build a dream house, send your kids to school, take a year off work, etc.
You aren’t just investing to pad your balance sheet; you’re investing to build intentional wealth that helps you live a life you love. And building that life takes time, discipline, strategic thinking, and passion to bring to life.
In times of uncertainty, returning to your goals can help you stay the course and build wealth with purpose and promise.
Bonus: Work With A Trusted Financial Team
Sometimes it’s challenging to separate fact and fiction in the world of investing, which is why having a trusted financial team on your side can be an immense comfort.
DIY-ing your finances might be of interest to you, but it’s always nice to have someone in your corner helping you manage the many (many) competing priorities in your life.
A team can help you build a plan that’s unique to you and give you someone to call when you’re uncertain or looking to make a change. We’d love to be part of your financial team. Set up a call with an advisor today.
Investment advisory services are offered through Vestia Personal Wealth Advisors, Vestia Retirement Plan Consultants, and Vestia Advisors, LLC. Securities are offered through Ausdal Financial Partners, Inc., 5187 Utica Ridge Rd, Davenport, IA. 52807 (563)326-2064. Member FINRA/SIPC. Vestia Personal Wealth Advisors, Vestia Retirement Plan Consultants, Vestia Advisors, LLC, and Ausdal Financial Partners, Inc. are independently owned and operated.
This material is intended for informational purposes only. It should not be construed as legal or tax advice and is not intended to replace the advice of a qualified attorney or tax advisor. This information is not an offer or a solicitation to buy or sell securities. The information contained may have been compiled from third-party sources and is believed to be reliable.