Threats of Market Fluctuations?
I would like to thank Michael J Garry CFP®, JD/MBA from Yardley Wealth Management for contributing to this month’s guest blog article.
One of our responsibilities as an investment advisor is to understand the volatility of the markets and enable you, as the client, to understand various events as each floods the media and grabs the attention of investors.
A large portion of the popular press is dedicated to the effects that the election could potentially have, post-Brexit conditions, and the inevitable possibility of the Fed hiking interest rates. While digesting these reports it is necessary to keep in mind the words of John Bogle, Vanguard founder, “The stock market is a giant distraction to the business of investing.” investors must remember that while various events around the world might be extremely important, they must not serve as a distraction to the long-term goals of investing.
These are timeless words to invest by, as is Bogle’s deeper explanation of them:
“The expectations market is about speculation. The real market is about investing. The only logical conclusion: the stock market is a giant distraction that causes investors to focus on transitory and volatile investment expectations rather than on what is really important – the gradual accumulation of the returns earned by corporate business.”
It is extremely easy to indulge in detailed analysis of economic news and thus, draw conclusions in terms of a portfolio but it is vital to not lose track of the real task at hand.
When this evidence-based investing strategy is realized and incorporated into the minds of each investor it will become a fairly simple task to acknowledge that these intrinsic events exist but will not hinder your ability to achieve the kind of investment success that John Bogle describes.
“In addition to providing you with these types of evidence-based investing strategies, our responsibility as fiduciaries is to discuss what actions – or inactions – are in your best interest when you decide that an economic event is of urgent matter. Essentially, it is both our desire and legal obligation to advise you when you are indecisive in terms of your investment decisions. Ultimately, it is necessary to keep in mind a few key points:
- Market drops are an expected, unavoidable part of investing.
- Our advice is simple and straightforward: Stay calm and stay the course.
- Remember why you’re investing. If you’re saving for a long-term goal, such as a retirement, your allocation already factors in a short-term market drop.
We are aware that the media often presents events in ways that makes it difficult to digest as investors and therefore, so we are always happy to talk about the economic climate and to ensure that your strategy is aligned with your goals.
We believe that market conditions are always arbitrary in the near term. We take the long-term, evidence-based view that you benefit by focusing on long-term investing goals. Academic studies have found that market timing can cost about a percent and a half in foregone returns per year.
Our job is to remind our clients to remember we have prepared for market fluctuations and we don’t respond irrationally to them.
Michael J. Garry, CFP(R), JD/MBA, is the owner of Yardley Wealth Management, LLC, is an independent Financial Advisor who provides Fee-Only financial planning services and investment management in Newtown, PA, and the author of Independent Financial Planning: Your Ultimate Guide to Finding and Choosing the Right Financial Planner