By Steve Yeager, AIF®, MBA, Principal and Senior Financial Advisor
Markets like these remind me of my job before I became a financial advisor. My previous profession was as a Navy pilot flying the F-14 Tomcat. One of the most uncomfortable feelings I ever had occurred while in-flight refueling on a very dark night over the ocean.
If you want to know what a dark night over the ocean is like, go into a room of your house at night, turn out the lights, get in a closet and shut the door . . . then close your eyes tight. That night, as I was flying “plugged in” to the tanker for refueling, I experienced a severe case of vertigo that I remember vividly to this day. Although I knew my wings were close to level – the tankers always flew in a predictably shallow circle – my brain told me I was in a turn so steep that it approached 90 degrees angle of bank. Logic told me my feeling was wrong, but it was very difficult to overcome in the moment.
Fortunately for me, I was flying with an experienced Naval Flight Officer in the back seat. He had flown a lot of flights and even experienced vertigo himself. I told him what I was feeling and he calmly began talking to me: “Your wings are level. . . Your wings are level. . . You’re in a 5 degree angle of bank. . . Your wings are level.” Eventually my brain transitioned from the irrational “feeling” to the reality that my RIO was communicating to me. Within minutes, the extreme discomfort was gone – despite the night being just as dark as it was prior to the episode.
“Timing” the Market
Markets like those of the past few weeks can easily instill a case of “vertigo” for investors – and even professionals – that can be very difficult to overcome. Watching stock prices decline, then projecting those continued losses forward indefinitely, can encourage action that is often detrimental to a long-term financial plan. Phrases like “stop the bleeding” or “wait until things settle down” are often used to justify acting on the vertigo of the moment. Sometimes, the tremendous desire to time the market takes over, even though most of us recognize a positive outcome would only be the result of luck.
Jack Bogle, the founder of Vanguard, sums up his advice to those tempted to time the market: “The idea that a bell rings to signal when investors should get into or out of the market is simply not credible. After nearly 50 years in this business I do not know of anybody who has done it successfully and consistently.”
Short-term market movements are unpredictable. That applies to the up periods, like in late 2019, and to the down periods, like we have seen in recent weeks. The truth is, people’s opinions about what the market will do in the short term are no more than that: opinions. Only the long term view is clear.
At SYM, we build portfolios for the long term and we encourage clients to hold at least 5-10 years of expected portfolio distributions (cash flow needs) in bonds or cash to ensure that all stocks have a minimum five-year time horizon. The current crisis will likely subside long before the five-year time horizon, and equities will once again become the growth driver within your portfolio. Continue to save in your retirement plan, maybe invest excess cash at lower market values, and try to avoid the discouraging exercise of watching the day-to-day market movements; these will prove successful strategies should you find yourself experiencing market vertigo.