What Are You Doing on November 4th?

Election Day, Tuesday November 3rd, is only a week away. While 2020 has been historic, it seems that everyone has a dramatic expectation of what will happen in the investment markets, as if it will be the “next” big 2020 disruption.

This morning I scheduled an appointment with my dentist. While the office’s operations coordinator looked at the upcoming weeks, she asked me “What are you doing on Wednesday 11/4?” Obviously, she was inquiring about my availability, but given that I have been thinking about and discussing the elections and markets with regards to next week as often as I have, my first response was….”I’m going to take a deep breath and proceed with my regular Wednesday routine.” As you can imagine, she was a bit confused by my answer, and expected me to discuss times that I could make it in to the office. I apologized as I laughed with her, and explained that the response was automatic with regards to the election and the investment market conversations I had been having around the same time period.

I found it refreshing that the question posed by the dentist’s office wasn’t related to my portfolios, my predictions about the election, or any possible conspiracy theories, but I do understand the tension. We again have been spoon fed fear by our media outlets and everyone is susceptible to the noise. I’m not mad at the media. They provide news, but they sell advertisements, and hope, joy, and safety don’t sell many ads.

“But what about the “fill in the blank” forecast, or the gal/guy that predicted the financial crisis, and her/his take on what we’re walking into? Surely, if they were right before, they’ll be right again.” Does it offend you that I don’t put any more weight in their predictions than I do my own? Point in case, I point to March 16th, 2020. The investment markets were in a spiral that tested even the most convicted “long term” investors. In the background of my office is my tv, and if I don’t have a client meeting I usually have on one of the major financial news networks playing…… on mute. I watch the market action mostly, but occasionally as I glance over, I see a headline that is so intriguing / disturbing that it prompts me to turn the volume on (none of us are immune to the grip that the media has on us). On that particular day, the news outlet (identity concealed to protect the innocent) had obtained a client letter from a large money manager (identity again concealed to protect the innocent), that opened with “it’s time to take drastic measures and move out of the market.” It doesn’t get much more serious than that for a money manager. We get paid to manage investment portfolios, not to manage cash, and a statement to that degree was effectively saying “we can’t see any way that we get out of this alive.” Not only that, but upon further commentary by the market experts on the network, they were talking about not getting back into the market until 2021 or 2022! Just one week later, the market bottomed out and the recovery started. I often wonder if that investment firm actually took action and placed all of their managed assets in cash. I’ll likely never know, but I am confident that the news network will never go back and ask their analysts to comment on how they would still have clients holding cash for another year plus. When it comes to “predicting market disaster,” only those that prove to be true live on in history. On the other hand, the thousands of predictions that never come true conveniently decompose into the oblivion of everything that has been written along the same lines.

I’m not saying that I have more experience or knowledge than they do, and I’m not saying I’m right, but I am saying that you have to feel with your gut to obtain conviction. The only way to do that is to make up your mind, based on your own research and understanding, to proceed with confidence. My research and understanding shows a much different picture of the markets and how they relate to events than the headlines do. Legg Mason, a global asset management firm, has historically put out a publication called “Learning From the Lessons of TIME.” In the publication, they show the actual returns for the past 50 years as line graph in which it clearly shows that the market has had substantial growth over time. Over the top of the line graph, they have appropriately highlighted some of the most troubling headlines from TIME magazine. In fact, it starts with the cover of the January 1972 issue of the magazine which displays the headline “Is The U.S. Going Broke” and proceeds to highlight over 31 other covers that show doomsday type predictions. You may know the actual returns of some periods of time in the markets and it is correct that some of these headlines previewed some difficult market contractions, but as you look at all of the pictures and the ultimate result of market returns, it shows the truth. Markets have had down periods, but overall, a dollar invested and held in the market over any significant period of time has a better chance of becoming more valuable than less valuable.

I’m all too familiar with the statement that inevitably follows. “But I don’t have 50 years to recover from a tragic market contraction” or the more pointed counter of “Easy for you to say. You aren’t retiring in the next [insert specific time period here] years.” I take special exception to the second counter argument, but I understand that it’s fear driven.

My response, is that you’re right, and most of us don’t have 50 years to recover from a market contraction. The good news is that historically you don’t need that much time. The market has showed consistent growth over the past 50 years, but the average length of contraction to recovery is only 12-18 months in modern markets, and if you include the complete history of the investment markets, then the number goes up to 24-36 months from peak to trough and back. The link to the Investors Business Daily article from 3/26/20 proves that even with respect to the corona virus, the market proved the averages don’t always hold up.

Furthermore, we could even argue that the only way to lock in a loss for your portfolio would be to do the same thing that you propose is safer. If you were to put 100% of your portfolio in cash, your available balance wouldn’t decrease, but it’s hard to see a scenario where inflation didn’t decrease the purchasing power of a dollar in your portfolio. Yes, inflation would only erode your portfolio by single digit multiples, but it would still compound for every year that you remained stagnant and you’d be left with “less” opportunity with your assets than you had if the monies were to at least appreciate at the rate of inflation.

So what should you do with your investments in this unprecedented time with a global pandemic, a volatile election cycle, social unrest and everything else that “could” happen to decrease your portfolio value? It depends on whether you have decades or days in your investment timeline.

If you have decades, you should look to the headlines of the past and think about whether you truly believe this time is different. Will the market, for the first time in history, not recover all the losses it sustains in a proposed election or pandemic driven contraction? I don’t believe that’s the case, but if you do, then you should act on it.

If you have days, then you need to evaluate your resources and your means. You should already have a plan for stepping into retirement during a bear market. Some rely on an emergency account that has been established for just this type of eventuality, while others may choose to make adjustments to their lifestyle as a means to weather the storm. It’s happened to countless retirees in the past and those that have a plan are prepared with the necessary action steps that are needed to achieve successful retirement outcomes. If you don’t have a plan, you need one and you won’t be the first individual or family to come to a financial planner with a need for advice. Financial planners can’t fix what hasn’t been done in the past, but we can provide an unbiased assessment of your options going forward. I often say, “Unfortunately, I’m not always in the business of providing good news, but I’ll always provide you with as many options as I can see.” Any good financial planner will be able to do the same.

If you’re somewhere in between having decades and days before retirement, then look at your range of probable returns by staying invested according to your unique investment risk tolerance (another helpful insight that a financial provider can help you identify). We each have unique beliefs, comfort zones, and outlooks, and each of us should look to our own convictions about what is going to help us sleep the best each evening when we lay our heads down.

So what am I going to do on November 4th? I’m going wake up, take a deep breath, and go about my daily commitments as normally as my life circumstances allow. I’ll hold onto my convictions about investing that have led up to the election, and I’ll adapt if I see the probabilities change. I’ll expect a higher level of volatility in the markets because of the events and circumstances that face our nation and all of mankind, but I’ll also look back and try to put myself in the shoes of those that have walked through relatively similar scenarios in the past where headlines threatened to obscure the law of large numbers. I’ll serve my clients as well as I can, and always remember that we are emotional beings more than we are rational beings.

The only thing I know I won’t be doing on November 4th is going to the dentist. That day didn’t work with my availability.