Very few people like to see their investment portfolio drop in value. We all want the wonderful long-term returns that can be gained from investing, but very few of us enjoy the rough patches that inevitably pop-up along the way.
So how do we get the good without taking the bad?
Let me assure you—it’s impossible. Some may be able to fluke from time to time but no one can consistently predict the future. Just ask a weatherman. The simple fact is, markets will do what they will do and they don’t ask for, nor wait for, anyone’s permission to do it.
But let me also assure you that the rough patches pass. In fact, every single time that North American equity markets have dropped, they’ve not only come back, but they’ve surpassed their previous highs—every single time in recorded history. Volatility is normal.
Now I realize you’ve heard all that before. But when your portfolio is down it’s still only about as comforting as a wet towel. I get that. And the truth is, it’s perfectly normal to feel anxiety when markets swing. Perfectly.
In fact, during one of the most recent downward market swings I just happened to be on a flight to Alabama for a speaking engagement. I was thinking about how my clients might be reacting when, right then, the plane hit some serious turbulence.
Now I’m not sure what you do when you hit turbulence, but I always do the exact same thing. I look for the flight attendants and I watch their facial expressions. If they’re cool, then I’m cool. After all, they do this every day so if it isn’t phasing them, then I’m not going to bother losing my mind about it.
However, if I see them buckling up in a panic and praying between sobs, then it’s very likely that I’m going to fall apart. Thankfully, that’s never happened.
Anyway, in that moment, it struck me how similar turbulence is to market volatility. No one likes it. It's never fun. And though the person beside us looks like they are about to throw-up and is swearing they will never fly again, it's just turbulence. It's normal. Just ask the flight attendants. It happens all the time. And it'll pass.
And unfortunately, the only way to avoid turbulence is to not fly. But then we'll never get where we want to go. At least, not in a reasonable amount of time.
Same with market volatility. No one enjoys it. But it's a normal part of investing. And unfortunately, the only way to avoid it is to put your money in a bank account, a GIC, or under your mattress. Of course, if we do that we'll never get where we want to go. At least, not in a reasonable amount of time.
Rhys Martell, BA, EPC
Rhys Martell is an independent financial advisor and runs a private practice out of Abbotsford, BC.