People in the crypto space like to use the acronym "FUD" (fear, uncertainty, and doubt) when referring to negative happenings in investments or financial markets. It's safe to say FUD has crept into most markets. Caused by a reaction to central bank inflation, high debt levels, weak economic growth, geopolitical tensions, incompetent political parties, and continual bureaucratic intervention.
Nine days before Black Monday (the initial October 28, 1929 crash) Yale economist Irving Fisher said “Stock prices have reached what looks like a permanently high plateau.” It’s one of the worst market readings ever. Of course, our markets had a very rough decade. Nobody knows what that market is going to do over three days or three years… but we have a pretty good idea of what will happen over three decades. Time IN the market is wise, timing the market is human but foolish. While invested, we should be prepared for anything.
Major market movements present opportunities to reconnect with the basic principles of investing, such as having (and sticking with!) an investing strategy, diversifying one's investments, letting the magic of compounding work for you, and keeping investment expenses low. These principles are important because nobody knows what is going to happen next. Legendary investor, and perma-bear, Jeremy Grantham thinks we may have a Wild Rumpus, but he's been calling for the bubble to burst since 2016. Maybe he's correct this time. Again, nobody knows what is going to happen next, so the best course of action is to stay calm and stick to one's plan.
Here are the questions and topics I encourage investors to think through on a regular basis - not just when there's FUD in the financial markets:
Goals
What is this specific money for?
(What Values, Intentions, Purposes, or Goals does it support?)Have your goals changed?
(We should always match our investments to specific goals.)What is the timeline? (Your investment and goal should always be connected to a timeline.)
Risk
Is your real Risk Preference at the moment a lot lower than your Risk Tolerance when thinking about a possibility? Is it a lot scarier now that it is happening? There is the risk your wallet can mathematically handle (Risk Capacity), the risk your head thinks it can handle, and the risk your stomach can actually handle. You have to find the optimum point in that triangle for you and your spouse, and it is usually at the lower end.
Portfolio & Planning
Is it time to rebalance your portfolio? (You can also rebalance by adding.)
Is it a good time to invest a little more?
Does this show you that you need some liquidity?
Are you SURE you want to sell into weakness and realize what is right now probably a temporary paper loss?
Asset Class Diversification helps protect against many other returns you don’t see like the sequence of return risk. (Yes, you need bonds, cash, and other non “growth” assets. Retirees need even more fixed income. You draw from the well that is currently full.)
If you have a lot of individual investments you should be looking at tax-loss harvesting, your investment manager should have already done it.
Crypto markets are highly volatile, that is why they can return so much. High risk, high reward- but high risk. This is probably the first true crypto winter, and that’s okay. There is a real utility and infrastructure built into the system, the exchange rails are operating properly, and communities are going about their business. The value of the token dropping because of irrational fear, or the value skyjacking because of irrational exuberance does not change the underlying utility and value. Flippers and bubbles cause disruption, but they don't stop the real work from being done underneath. (Here's a good short article on viewing crypto risk in relation to other assets.)
Market timing is usually a fool’s errand. Here's a good (fictional) example.
Stick To Your Plan
If you're a client, you already have a financial plan in place and you know you can always contact me to discuss the things mentioned above.
Not a client? Feel free to schedule an initial consultation if you want to talk about creating a financial plan.
