During a bear market, or almost anytime the market suffers a significant reversal, we hear from readers who ask, “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 realize they don’t have an objective long-term plan to guide them! (If you haven’t 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 you do have a plan and are following SMI’s suggestions but are nevertheless fearful or nervous, perhaps the following will encourage you.
Putting away childish things
Many investors make decisions rooted in emotion rather than 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. When these dreams of strategic and tactical investment perfection fail to materialize, you’ll likely react with disappointment, anger, or fear.
The reality is that markets are unpredictable. It is impossible to always make the perfect choice at the perfect time. Therefore, since you can’t achieve the impossible, it’s better to focus on doing the right thing at the right time — even when your emotions try to pull you off track.
By the “right” thing, we don’t mean always making the most profitable decision. Doing that would require knowing the future. Instead, 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 do the right thing consistently. Here’s how SMI’s approach helps you exercise self-discipline.
Doing the right thing is easier when a 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 approach.
Doing the right thing is easier when the rules are clear-cut. SMI provides guidelines for determining your mix of stocks, bonds, or other asset classes (based on your risk tolerance and season of life ), and we offer specific, data-driven fund recommendations. 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 direction based on daily headlines or market forecasts. Continual tinkering isn’t required or desired. Instead, SMI’s active strategies (Upgrading, DAA, and Sector Rotation) are typically 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. To implement SMI strategies, you don’t need to read The Wall Street Journal or keep daily records or charts. As already noted, we update our active 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 will 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 don’t beat the market every month. They don’t even beat the market every year. However, each has a solid track record. At SMI, 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 persevered have been handsomely rewarded.
And here’s one more bit of encouragement: God Himself equips us to be faithful stewards. 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).
