Bad Not So Bad
Are you are wondering whether you should adjust your investments in light of current events? This is a good time for some context on why withstanding today’s bad market news can actually translate into good news for you and your investments, at least in the long run.
In multiple pieces we have emphasized the importance of creating portfolios based on your willingness, ability and need to tolerate market risks in pursuit of expected rewards. The market’s recent performance serves as an excellent example of just what that risk feels like when it happens. It hurts, it can be scary and it’s not any fun at all. But if these sorts of realized risks never occurred, sometimes severely, the market could not be expected to deliver long-term premium returns to those who are willing to ride out the pain.
It might help to think of investing in the markets as being like going to the dentist. It’s unlikely you enjoy getting your teeth cleaned, having a cavity filled or undergoing a root canal. But these unpleasant experiences are necessary to preserve if not improve on your winning smile. Just as your dentist offers pain mitigation strategies as appropriate, diversification is our prescribed pain-killing medicine to help lessen, if not eliminate the hurt when it occurs.
Big-picture strategy aside, it’s natural to have questions about the unfolding news that is grabbing current headlines: China’s devalued currency, the Fed’s plans on U.S. interest rates, declining oil prices, ongoing uncertainty in Greece, and so on.
While breaking financial and economic news don’t overly influence our long-term advice, the news and information is fascinating. It contributes to our ongoing understanding of how markets operate over time. Given what we have learned over decades of similar market declines, this latest decline fits perfectly with our expectations and long-term portfolio structure.