Published June 26, 2023
At One Day In July, we often see clients become nervous when the markets are volatile or when an event looms large. This is understandable, as it can be difficult to watch your investment accounts go up and down, especially when you are nearing retirement or have other financial goals in mind. It’s also a common trait for the mind to predict the worst-case scenario as a critical event draws near.
However, it’s important to remember markets are always uncertain, particularly in the short term, and there will always be potential for another crisis on the horizon. A core function of our work as fiduciary financial advisors is helping clients stay calm and stay the course during times of tension. Over the long term, this approach has proven superior to taking actions driven by emotions, such as selling out of the market. It’s incredibly difficult to time the market correctly at both exit and reentry.
The recent debt ceiling situation is a good example of how nerves can creep into the mentality of investors. As the ominously-named “X-date” approached and political posturing was ramping up, investors across the globe rightfully became concerned about what would happen to the economy (and their retirement accounts) if this game of chicken went too far and the US government actually defaulted on its debt obligations. Media pundits didn’t help with predictions of market crashes and economic Armageddon.
But in the end, the debt ceiling was raised, and the markets did not crash. In fact, the markets went up.
During the months-long debt ceiling debate I spoke with clients, potential clients, friends, and family extensively about the situation. I was most frequently asked: “What’s going to happen and what should I do?”
While One Day In July has yet to develop our crystal ball technology, we do believe that looking at the past assists in understanding how the future may play out. Past performance cannot guarantee future performance, but there are lessons to learn. We think assessing lessons from the past in the context of the current moment is a reliable recipe for wise decision making.
For example, in its modern form, Congress has consistently been called on to raise the national debt ceiling, so often it’s become a core function of the legislative body. According to the US Department of the Treasury, “since 1960, Congress has acted 78 separate times to permanently raise, temporarily extend, or revise the definition of the debt limit – 49 times under Republican presidents and 29 times under Democratic presidents.” Moreover, the context of the political dynamics of Washington lent some explanation to how the debate was playing out. Namely, with presidential primary elections on the horizon, each side of the aisle was politically motivated to satisfy their respective base. It’s likely neither side was ever going to agree to an early compromise out of fear that their base would revolt over them giving in too easily.
This information was in part what informed my advice to those who sought it during a time when emotions were telling us to sell stocks, buy gold, and doomsday prep. How did I answer “What’s going to happen and what should I do?”
“Stay the course because this will likely resolve as it has every other time.” And it did.
Here are a few strategies you can focus on to help yourself set a smart plan, remain calm, and stay the course.
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