What Bear Markets Have Taught Me
Mama said there’d be days like this, and I do feel fortunate to have seen a few of them. We officially entered bear market territory today following the coronavirus pandemic and related economic circumstances. Notably, this is the third bear market of my 21-year financial services career. As I collected my thoughts and talking points to discuss with Pearl Planning investors, I thought it would be helpful to share what I learned from experience.
- Verbalize and acknowledge your emotions and reactions. Losses feel more painful than fears. For most of us, angsty, fear-based reactions to loss whether physical, psychological, or financial are hard-wired into our brain and amygdala. Let’s talk to discuss how you’re feeling.
- You want a prediction of what’s next, but it leads to fools’ errands. It would be nice if there were a market soothsayer, but the near-term future of markets is inherently unpredictable and I don’t try to predict them.
- Timeframe is Everything. If you’re retiring soon, you may feel like retirement is a finish line when for most of you it’s a transition. With a careful analysis of your timeframe, you may reposition interim points like retirement to be defined as pivot points and this can help. For most of us, we’ll continue to be investors for decades.
- Your financial plan is your touchstone. Financial plans, when soundly prepared, are built to give you flexibility and options. If a plan is maintained, it can hold the answers to your questions of “will I be okay?” or “can I retire?” And so much more. If you don’t have a financial plan, there’s no time like the present to start to put one together. If you haven’t revisited your plan in a while, why not dust off the foundation today?
- Practice self-care. Be kind to yourself during moments of crisis and anxiety. Your health depends on it, which is so important in the context of our current coronavirus pandemic. But also, your ability to make decisions and manage uncertainty will be heightened by simple steps like deep breaths, focus and avoiding fear-mongering distractions, and mindfulness.
- Add in some gratitude and recreation. Science has shown that gratitude can increase well-being. If you are watching market news like it’s your new job, give yourself some breaks with fresh air (to the extent that your local public health officials allow it) and entertainment or distraction.
- Our investment process was built for times like this. If you’ve been working with an investment manager or financial planner with an investment process, it was built not just for new market highs, which we experienced just weeks ago, but also for sharp declines. It will not feel comfortable to stick with your process. That’s why it’s helpful to document your strategy with an investment policy statement. But, having lived through bear markets, and had more than a decade to prepare for this one, the process is everything. It allows you to be contrarian, disciplined, dispassionate—at least in your portfolio decisions.
- Emergency preparedness counts. Cash on hand, emergency reserves, and flexibility in withdrawals, if needed, are tried and true antidotes to pullbacks and market uncertainty. Likewise, public health instructions for slowing the coronavirus pandemic are risk mitigators. Risk management and attention is a cornerstone of health and investor fitness.
- Proactive actions improve your circumstances and distract from media meltdowns. What are the prudent actions in today’s market? Consideration of loan refinance, acceleration of retirement or college contributions, tax management in brokerage accounts all might be possibilities. Review your personal circumstances with a financial planner.
- Feeling fearful when others are greedy, and greedy when others are fearful is SO difficult. September 2009 felt so awful, and yet it was the greatest moment of investor opportunity in my professional life. How do you manage? Self-care, a process that fosters discipline, and focusing what you can control are pillars of successful management through the most painful moments which are possibly synonymous with moments of greatest opportunity.
I love my job and plan to work with people and families like yours to support you and your financial decisions for years to come. Thus, I know that this conversation and this bear market won’t be my last bear market, it will just be my third.