We get this question often, usually on the down side of market volatility but also at other times, such as when your favorite political party loses control of Congress or the Oval Office.
Even bull markets are said to climb a “wall of worry.” In other words, a barrage of concerns attacks investors at all times, whether it’s a war somewhere on the globe or a particular industry’s troubles.
Most of the time, fear underlies a question
about taking money out of the markets and putting it into cash.
When this question comes up, we try to explore the root cause of concern.
Sometimes, it's a lack of financial education. Clients check their accounts, and they’re down in value. But if the funds are invested for the somewhat distant future, we use this as an opportunity to review the client’s goals, as well as to provide historical market data and the latest economic information.
While our crystal ball is always blurry, a well-planned investment strategy has helped many of our clients pursue their goals.
The most common root cause of market anxiety is the lack of sufficient cash reserves. If a client–working or retired–spends $5,000 a month but only has $10,000 in their savings account, a market drop tends to worry them because any small hiccup in their finances could force them to draw on their investments when they are down in value. (See the language “well-planned investment strategy” above.)
Calming fears caused by lean reserves is straightforward, if not easy for those who need to save more: Grow your cash stash that is used for monthly income needs or emergencies.
Another cause of marked-related fear is lack of diversification. Some investors like to hold individual stocks centered around a certain type of business, such as energy or technology. They prefer these because they understand the industry, perhaps. But certain sectors suffer dramatic swings in fortune, with stock values often trending down all at once. A bad-news scenario is working at a company that melts down, while also holding its stock in your retirement plan.
In conclusion, experiencing fear around financial issues isn’t unusual or irrational. It’s a natural response to your desire to preserve your well-being and sense of security.
If you are wondering whether you should take your money out of the markets, let’s discuss a personalized plan (scheduling link) to reduce the anxiety you are feeling. Together we can establish strategies not just for the long term but also for more immediate needs, so hopefully you will have more confidence in your plan.
Relevant reading:
The barbell strategy: A simple concept to help you stay the course
A bucket plan to go with your bucket list
Quote we love: “There’s only one way to stay wealthy:
some combination of frugality and paranoia.”
~ Morgan Housel, Collaborative Fund
Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through ICA Group Wealth Management LLC, a registered investment advisor. ICA Group Wealth Management LLC and Corner Post Financial Planning are separate entities from LPL Financial.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Investing involves risk including loss of principal. No strategy assures success or protects against loss.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.