Putting the sell-off in perspective
- “Crimson arrows pointing down, pundits shrieking on financial television, stock-market charts flickering like monitors in a hospital emergency room: all these indicators make what is happening in the short term seem perfectly clear. But if you form long-term investing plans based on them, you will be sorry... In order to capture the potentially higher returns that stocks can offer, you have to reconcile yourself to the certainty of horrifying short-term losses.” —Jason Zweig, writing on the Wall Street Journal’s “Money Beat” blog on 8/24/15.
- “Every valid investment strategy goes through periods of underperformance (relative), or drawdowns (absolute). The question is how you deal with it. One key characteristic of frustrated investors is that they jump from strategy to strategy. The first sign of weakness forces these weak hands to jump ship at just the wrong time. In short, following a strategy is easier said than done.” —Tadas Viskanta, blogger at Abnormalreturns.com, writing on 8/24/15.
- “The only reason stocks can go up is because they can also go down. It is this risk that keeps investors in check and that keeps people from paying an infinite amount of money for shares in a business. The reintroduction of risk, in the context of this summer’s sell-off, is the best thing that could have possibly happened.” —Josh Brown, blogger at Thereformedbroker.com, writing on 8/24/15.
- “A ‘do nothing’ prescription might be tough to swallow if you’ve been caught off-guard by recent volatility. But...no action is an active decision, and can be the right decision for reaching long-term financial goals.” —Vanguard, 8/24/15. Read the full article.
- “Rather than focusing on the turbulence, wondering if you need to do something now, or what the market will do tomorrow, it makes more sense to focus on developing and maintaining a sound investing plan.” —Fidelity, 8/25/15. Read the full article.
Timeless investment advice
- “You could pick any single data point that aligns with your current positioning and build your narrative around it to make yourself feel better about your investment stance. But unless you’re able to see all sides of a debate you’ll never be able to make rational decisions when it comes to the markets. There’s something to be said for nuance, perspective and context when it comes to analyzing complex systems such as the markets.”
—Ben Carlson, blogger at Awealthofcommonsense.com, in a 7/23/15 post.
- “...it is very difficult to position a portfolio for an uncertain future event occurring in one or more asset classes at an undetermined time... When you are uncertain about the future, don’t position your portfolio as if you were certain.” —Ben Inker, Co-Head of investment management firm GMO’s asset allocation team, writing in the company’s 2Q 2015 newsletter.
In defense of “The 4% Rule”
- “Ultimately, this doesn’t necessarily mean that the coming years won’t turn out to be even worse or that the 4% rule is ‘sacred,’ but it does emphasize just how bad the historical market returns were that created it and just how conservative the 4% rule actually is, and that recent market events like the financial crisis are not an example of the failings of the 4% rule but how robustly it succeeds!” —Michael Kitces, on his analysis of the common recommendation that retirees can safely withdraw 4% of their portfolio each year—Kitces.com, 7/29/15. Read the full article.
Failing to plan is planning to fail
- 62%: The number of investors who do not have a written plan to help them achieve their investment and retirement goals. —Gallup survey, May 2015.