When the stock market experiences sharp downturns, as it did in August of 2015 and again in early 2016, we hear from readers asking, “What should I do now?” Our answer is always the same: “Ignore the market and follow your long-term plan.”
It’s at this point some readers discover they really don't have an objective long-term plan to guide them. Others are following SMI’s suggestions, but are nevertheless fearful.
If you haven’t yet adopted a specific strategy to guide your decision-making, it’s time. The Start Here section of the SMI website has the guidance you need.
If it’s a question of emotional stress, perhaps the following will be of some encouragement.
Putting away childish things
Too often, people make decisions of emotion rather than of reason. They are focused on short-term satisfaction rather than on long-term objectives.
Against all reasonable expectations, they imagine themselves astutely selecting the cream of the investment crop, riding their holdings to the crest of a glorious bull market, and then wisely taking profits. Then they see themselves moving to the sidelines and letting other (presumably less savvy) investors suffer the frustrations of the inevitable steep and painful correction that follows.
Please don’t shoot the messenger, but if you’re thinking like this, you are living in a fantasy world. And when these wild dreams fail to materialize, you’ll likely react with bitter disappointment, anger, or fear.
Every successful investing strategy requires some degree of self-discipline, which is the ability to do the right thing at the right time every time, even when your emotions try their hardest to pull you off track. By the “right” thing, we don’t mean always making the most profitable decision. That’s impossible. The right thing is to ignore the distractions of news events or tip-of-the-day advice and stay with your plan. In other words, to make decisions of reason rather than decisions of emotion.
Let us reason together
SMI’s strategies are designed to minimize the wear and tear on your emotions and make it easier to consistently do the right thing. Here’s how the Sound Mind Investing approach helps you exercise self-discipline.
- Doing the right thing is easier when the strategy is simple.
Our strategies contain relatively few moving parts, and we use plain-English in our directions that tell you what to do and why. We explain how our strategies are designed, who they are designed for, and generally how they should perform under different market conditions. We want you to make a knowledgeable decision about which strategy (or strategies) to use and to feel confident following that strategy.
- Doing the right thing is easier when the rules are clear-cut.
SMI offers mechanical guidelines that determine your mix of stocks, bonds, or other asset classes, and specific fund selections. You can have more confidence when you know you’re making buy/sell decisions that come from an objective rules-based system.
- Doing the right thing is easier when you don’t have to respond too quickly.
We don’t change directions based on daily headlines or market forecasts. Continual tinkering is not required or desired. Instead, SMI’s strategies are updated just once a month. Some months, those updates require action on your part, but often they don’t.
- Doing the right thing is easier when you make commitments a little at a time.
When there are changes to make in your portfolio, they’ll represent only a portion of your holdings. The stakes aren’t so high that your fear of making a mistake paralyzes you.
- Doing the right thing is easier when it’s not time-consuming.
You don’t need to read The Wall Street Journal or keep daily records or charts. As already noted, we update our strategies once a month. When a change is required, it can be done online in just a few minutes. For Just-the-Basics’ investors, portfolios need tending only once a year!
- Doing the right thing is easier when you know your losses won’t kill you.
No strategy is perfect. Wise investors understand they will lose money from time to time. However, being well diversified and maintaining a long-term perspective help ensure that inevitable periods of market weakness won’t keep you from achieving your goals.
- Doing the right thing is easier when you know you’re in it for the long haul.
Our strategies certainly don’t beat the market every month, and they don’t even beat the market every year. However, over the long-term, each one has a strong, market-beating track record. We don’t aim to serve short-term traders; we serve patient, long-term investors who have the temperament to stay with our rules-based strategies no matter what the overall market is doing. Those who have done so have been handsomely rewarded.
We can look forward to maturing in our faith (and our investing decisions), putting aside childish things because “His divine power has given us everything we need for life and godliness… For this very reason, make every effort to add to your faith…self-control...” (2 Peter 1:3,5,6).