Turbulence. Most often used when describing those invisible bumps in the air on your flight from Detroit to LA. I often use the word to describe stock market volatility. Both are seen as the necessary evil to get you to your destination. Both aren’t pleasant to experience, may even make you queasy, but a small amount is customary and almost expected. Until that one drop that makes you gasp and grab the armrest. Your eyes open fully.
It was an air pocket that led to a sudden loss of altitude. And the bumpy ride continues. The turbulence has just gone on for so long now…. it’s been almost the entire flight. It’s not enjoyable. The captain keeps coming over the speaker and apologizing. He tells the passengers there is a big storm and air traffic control is looking for smooth altitude, but they just can’t find it. Beverage serves stops. What do you do.? I’ll tell you what I do: I keep reminding myself that airplanes don’t fall out of the sky. My palms are sweating. My stress level is up. I have awkward conversation to the person next to me…. I just want it to be over and get off the plane. But not at that moment, when we land of course.
This is exactly how I see a bear market. In the markets, that sudden altitude drop is a sell-off on Wall Street that dramatically lowers your account value. But what about when the sell-off continues? And continues.? And it’s gone down for almost an entire year with no growth (even when you are making deposits)….and you wonder if it will ever go back up. And you wonder if you will lose everything? You wonder if you should just sell it all to cash to protect what you have left. And that emotional fear of losing your money starts to override the logic of a well-diversified portfolio with a long-term time horizon. You wouldn’t dream of getting off the airplane midflight, but many succumb to this fear and sell during times of prolonged market losses.
I build portfolios to withstand market turbulence just like aircraft manufactures build airplanes to withstand air turbulence. There needs to be flexibility in the wings. There also needs to be flexibility in the account holdings. We must have the right time horizon in the markets just like the captain has to find the right altitude in the flight. Bear markets are not fun to live through, but they are normal in the markets. You may not want to fly home after such an experience, and that okay. But that decision is made on the ground not up in the air.
The stock market goes up and down. Sometimes it goes up and up. Sometimes it goes down and down. Nobody has a crystal ball, not even the people who tell you they do. They key is time horizon…. that is the most important factor in my opinion. Over time, a well-diversified securities portfolio can help you to your final destination… wherever that is for you.
Kimberly Enders CFP® CWS® CERTIFIED FINANCIAL PLANNER™
Enders Wealth Management
37800 Van Dyke Ave, Suite 125
Sterling Heights MI 48312
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A diversified portfolio does not assure a profit or protect against loss in a declining market
The views stated in this piece are not necessarily the opinion of Cetera Advisor Networks LLC and should not be construed directly or indirectly as an offer to buy or sell any securities. Due to volatility within the markets, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.