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Wall Street Steward Blog

Don't Freak Out

It is rare that I write a piece meant mostly for clients, but I think this is a good time to do so. My advice is simple: don’t freak out. I know the stock market has corrected, and even though the worst may still be yet to come, I am telling you that the right thing to do is to take a deep breath and pump the brakes on that bad decision that your “gut” is telling you to make.

First, some context. As of this moment, the S&P 500 has gone from a high of 2,019 (September 19th) to around 1,850, which is a decline of -8.4%. Combine that with some other scary news like (1)slowing growth in other countries, (2)geopolitical issues like ISIS, (3)a new virus called Ebola, and (4)the prospect of the Fed raising interest rates at some point, and all of a sudden the sentiment changes to “I’M SCARED!”

Well, I’m not.

You see…this is normal. The last 5 years are the aberration. We had a 5 year run where the market essentially tripled with hardly a down day – volatility has been at historic lows. So, once we see any volatility, it feels worse than it is. Think of driving 20 mph on a back road for 2 hours, and then merging onto an Interstate going 70 mph. It will FEEL much faster than it is. In my opinion, it is a GOOD thing that volatility is back, because volatility represents a more normal environment. As a professional, I would welcome a more “normal environment” and it looks as though we are getting that now.

I have said it before, and it bears repeating (pun intended) – we have NEVER had a stock market correction that we didn’t eventually recover from. Never. Never is a long time, folks. While the tendency might be to argue “It’s different this time,” try to resist because it is not different. We are not facing any issues that we have not seen before. Sure, some of them have different names like Ebola, but is that any different from Anthrax/HIV/The Plague? ISIS is a new title, but terrorism is not a new concept. We have seen these things before in one form or another.

Frame your investment decisions around facts – not your “gut feel.”

Do you still need to retire at some point?
Does your portfolio still need to fight off inflation?
Do you need all of your money to live off of tomorrow?
Has your life expectancy changed?
Will a 10% correction in the stock market change your standard of living?

Folks, you pay me to worry about your portfolios, so that you don’t have to. For the non-clients reading this, your advisor(s) should be in touch with their own message. If they’re not, find another advisor. My message is unchanged – things are never as giddy as they seem during the good times, and are never as awful as they seem during the bad times…if your goals have not changed, and you have a suitable asset allocation, sleep well tonight.