As a retired financial advisor, the question that I am asked most often is, "Is it safe now to get into the market?"
I answer, "No. It's never safe to get into the market."
When the market is falling, I hear, "Do you think I should get out?"
Again, "No."
Investing isn't like swimming at the club pool, diving in on sunny days, splashing around, getting out and jumping back in again but avoiding the water altogether when the weather is disagreeable.
A doctor called at the height of the 9/11 crises. He wanted to sell everything in his portfolio. "Go to cash!" he demanded. Nothing would dissuade him. His timing was exquisite. He called the very bottom of the market for the first decade of this century.
In the 1990's, a physician and his wife had over $3,000,000 invested. Empty-nesters, they loved the ocean and had a seasonal home on an island off of the Atlantic coast-nothing but smooth sailing ahead of them. One spring day, their accountant observed that they had not made much money in the market the previous year. The so-called dot.com market was booming. They were missing out. All the cautions about the runaway bull market did not deter them. They to transferred their account to a different broker. He sold their elegant portfolio of dreadnaught stocks and intrepid bonds, and tossed the cash into technology stocks. Days later, their nest egg was eviscerated to less than half. All of it had been dumped into the grossly over valued market when it was within 1 percent of the century peak.
Both stories are tragic. Not because of the money that was lost. Dreams were lost. The first client, frightened by the 9/11 attacks, thought that he would get out ahead of everyone else. Tens of thousands were there before him. The second couple, with a fortune secure, lost much only because they feared they were missing out.
When investors do not chart a course for their portfolio, every breeze-favorable or threatening-is cause for alarm. Investing is simple as planning a road trip. It begins with choosing a destination. Departure and arrival times are set given the distance to be traveled and a comfortable driving speed. Plans are adjusted if the calculations turn out to be unrealistic.
Investing begins with simple questions. A destination can be retirement, college education, or buying a new home. The rate of return is rate of speed-the equivalent of the one can expect on average over the lifetime of the portfolio. Higher rates of return are as dangerous as excessive speed on the interstate. Destinations need to be realistic. Research may be required. What kind of college education? How big a new home? How much income is needed during retirement?
The two couples, whose stories were recounted earlier, lost sight of why they were investing-their destinations. Journeys are not abandoned because of a flat tire. Nobody gives give up because a detour causes a delay. Being right on schedule should never be reason to drive at excessive speeds that are dangerous to everyone on the road.
Fear is a healthy human emotion. It signals that caution needs to be exercised. It is a non-rational function of the psyche, however. When a person acts only to escape the discomfort of it-to make it go away-the outcome will always be less than optimal.
The investors who stayed the course after 9/11 continued to experience a level of fear. But their maturity was rewarded, as history demonstrates again and again. Their funds participated in the recovery from the bottom dollar. Investors who fear that they may not have earned as much, as a selective view of the market may indicate as possible, fear they are being denied more wealth. Their fear leads to a lack of perspective and the greater hazard of losing what they currently possess. When an investor does not know how much he or she needs, no amount will ever be enough and every setback will feel like a disaster. With the destination in mind, however, surges and pullbacks are measured rationally and adjustments, if needed, can be made without panic.
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