Am I the only one who seems to get more confused the more I read into the current market environment? Markets don’t seem to be acting very rationally. But then again, investment markets have a long history of going against the day’s common wisdom.
Who would've thought that only a few months after the sharpest decline in stock markets, having fallen roughly 30% in one month, that we would be almost fully recovered with some segments of the markets, like the NASDAQ in the US, already breaking new highs. With all the bad news, astounding numbers and detrimental effects COVID-19 has had on communities and businesses, it’s hard to imagine that markets could find the confidence to climb this much. But they did! Sometimes markets go up. Sometimes they go down. Sometimes they move slow and sometimes they fall off a cliff. This time, they seem to have landed on the massive trampoline of fiscal stimulus and confidence. My point here is that markets can be very unpredictable. To help tolerate this volatility, you can choose to embrace the unknown and think of investing in the markets as a rollercoaster ride. But this rollercoaster has the potential to bring you from where you are now to where you need to be instead of going around in a loop. The key to making this ride a success is to buckle yourself in. It makes very little sense to unbuckle yourself in the middle of a rollercoaster ride. Just like you wouldn’t unclip your buckle on the way up the rails just to be launched in the air or at the bottom just to be spiked in the ground. You stay seated and embrace the ride because that’s the safest way to make it to the end. Just like theme park visitors need to acknowledge the potential experience of a roller coaster before riding it, investors need to acknowledge the potential experience of the markets. But what if you don’t like rollercoasters? Just like all rollercoasters are not created equal, neither are all investment markets. If you don’t want your experience to be as unpredictable, you can choose a more moderate rollercoaster which is slower and has less peaks, twists & turns. However, it will take this rollercoaster more time to cover the same distance. Investors can do the same by building a portfolio that allocates more of their money to less volatile assets, but the expected rate of return of such a portfolio will be lower so you may have to accept waiting longer to reach your goals or needing to contribute more to match the timeline of a more aggressive portfolio. Just like theme park visitors shouldn’t jump off the rollercoaster or try to jump from one rollercoaster to the next, investors shouldn’t try to abandon their portfolio construction or try to restructure it based on how they feel. The key is to trust the portfolio construction that best suits your goals & risk tolerance and ride it out until there are material reasons to rebalance or make changes. As we’ve seen in recent months, the market tends to reward those who buckle up and ride it out. This writing is for general information purposes only and is not intended to provide legal, accounting, tax or personalized financial advice. If you are not sure how to proceed with a request for further information, seek help from a professional. Any opinions expressed are my own and may not necessarily reflect those of Louisbourg Investments. Author:
Marcel LeBlanc, CFP®, CIM® is a Financial Planner with Louisbourg Investments. Comments or questions may be submitted to Marcel at marcel.leblanc@louisbourg.net, or he may be reached at (506) 383-5204.