Knowing Where to Miss

Professional golfers make it to the top in part because they can hit the tough shots. But, equally valuable, they also know where to miss. If there’s water in front of the green, they know it’s better to miss long. A cliff off to the left side of the fairway, it’s better to be a bit too far to the right.

The understanding is that you’re going to make mistakes sometimes. You’re not going to strike every shot perfectly. The goal is to not let those imperfect shots cost you the tournament.

With investing, the goal is to not let your investment mistakes cost you your future dreams and lifestyle. Thus, investors need to make similar calculations when evaluating their investment strategy. This is particularly poignant right now as markets march higher day-after-day in a carefree way.

With investing, the goal is to not let your investment mistakes cost you your future dreams and lifestyle.

Investing has been a relatively smooth experience since the Great Recession back in 2008-09. Since that period, almost all significant drawdowns in the market have been resolved in a matter of months. For example, in 2018, a 20% drawdown took some 8 months to roundtrip back to market highs.

The onset of Covid was arguably the most violent selloff today’s investors have ever seen, falling 35% in five weeks. But, it took just 6 months before the S&P 500 was making a new high.

The only occurrence that pressed on for more than a year? This latest bear market brought on by the Fed’s rate hiking to curb inflation. The S&P 500 fell 25% over nine months. But, the full circle took about two years to complete. We’ve been riding high ever since.

The only occurrence that pressed on for more than a year?

Prior to all that, we have the aforementioned Great Recession in which stocks peaked in 2007 and took until 2013 to fully break out to new highs. The Dot-com bubble was even worse in its timeline. Markets topped in 2000, roundtripped by 2007 for just a moment before falling again in the Great Recession. So, add up the two declines and it was a 13-year period before new highs were solidified.

None of this is meant to scare you or make you fearful of investing. This stuff happens in most every investable market. Drawdowns in private investments are just not as knowable as they are in the public markets that price everyday.

The point of all this is to make sure you have a strategy that fits your goals before storms wash over. The need for rational optimism is especially warranted when markets are strong, like today. That’s the perfect time to assess what you want for your life—your goals—and map out how much money those goals will require. Then, you can create a strategy that will help you achieve those goals with the least amount of risk possible .

The point of all this is to make sure you have a strategy that fits your goals before storms wash over.

That last part is not a throwaway line. There are many ways to achieve your financial goals. But, doing so with the least risk possible may help you better enjoy your life experience along the way. Unless, of course, you’re someone who craves high doses of drama and stress to feel fully alive. In that case, you may need to find a newsletter written by a daredevil who also happens to enjoy personal finance. If you find that person, please share. I’d enjoy reading their work.

Part of the problem right now is that markets are seemingly shooting the moon without any pull from gravity. New market highs without much of any volatility. Such a backdrop makes it easier to trick our minds into believing long, protracted downturns are a thing of the past.

After all, the Federal Reserve and the federal government have figured out new ways to intervene and support the economy. Whether that was the Covid response or the mini regional banking crisis a year ago.

After all, the Federal Reserve and the federal government have figured out new ways to intervene and support the economy.

What to do: If you have built up enough of a nest egg that the future of your dreams is within reach, don’t throw that away or see it delayed simply because you may believe the paradigm has shifted: that you can get high returns without high risk. Markets generally go up and, for this reason, it’s best to remain invested through all conditions. But, maybe dial back some of your aggressiveness.

What is the ideal exposure you should have at this stage of your investing journey? That’s the question for today.

Imagine your portfolio falling by $500,000 or $1 million. How about $2 or 3 million. How would that affect your future plans? Would you have to delay a major goal like retirement for a year, two years, five years? Would you have to adjust what college your son or daughter attends? How would that make you feel?

Imagine your portfolio falling by $500,000 or $1 million.

Your feelings will inform your decisions. It’s better to feel those emotions now while your accounts are still sitting at today’s levels and not after a big selloff.

The goal of investing is to achieve your life goals; to get the experience you desire. Investing can be a powerful driver towards those dreams. That’s why it’s important not to panic in troubled markets and not to feel invincible in powerful ones like the market at this moment.

If you’re not sure how to evaluate whether you’re taking too much risk to achieve your goals, reach out. Let’s have that conversation while your goals are still within reach.

If you’re not sure how to evaluate whether you’re taking too much risk to achieve your goals, reach out.

This material is provided as a courtesy and for educational purposes only. Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation.

All views/opinions expressed in this newsletter are solely those of the author and do not reflect the views/opinions held by Advisory Services Network, LLC.

The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. Indexes are unmanaged and do not incur management fees, costs, or expenses. It is not possible to invest directly in an index.