Here is Wisdom

August 21, 2015

 

The Dow Jones Industrial Average (DJIA) dropped 358 points yesterday and today (at 11 AM) it is down another 360 points.  To put that in perspective, it is (so far) a two day drop of 718 points, or 4.14%.  It means that the U.S. stock market is turning in the worst week of the year.  That is frightening to investors.  It can cause emotions to run high. 

 

As an investor, I feel those same emotions that my clients feel.  But, as an advisor for 34 years, I have learned to temper that emotion with wisdom. 

 

Here is wisdom:

 

• Never forget your time frame and objectives.  If it is long term money, stay focused on the long term and don’t let what is happening today, or this week, or this year rattle you too much.  If your funds were invested with a five or more year time frame, then keep that perspective.  If you have a good plan in place, stay with it.   If you don’t have a plan, let’s talk.

 

• Be sure to understand your true risk tolerance, and what that means.   Volatility is a natural part of investing.  It is what produces growth in the long term.  Consider how much volatility you are really willing to tolerate.  Have you taken our Risk Analyzer test?  If not, perhaps you should. 

 

• Be sure to have a risk management plan in place.   Too many investors have an “invest it and forget it” portfolio.  Today it is important to have a risk management plan in place – one that monitors and measures market risk and stands ready to adjust as needed.  If you have a plan, trust it.  If you don’t, it is time to get one.

 

• Trust and follow your plan.  Risk management plans will not take all the volatility out of a portfolio.  Risk management plans are designed to protect our funds through full market cycles.  So, accept that volatility will sometimes rattle the markets.  But, you can still meet and achieve your long term objectives. 

 

• Don’t sweat the small stuff.  A two day drop of over 700 points is kind of a big deal, but only for a short time.  It is very possible that we won’t even remember this volatility six months or a year from now.   The very destructive bear market cycles of the last two decades have played out over periods of 18 – 30 months.  That is what we hope to avoid with our risk management strategies.

 

Market craziness like this week can be very unsettling.  But, it is a normal part of the investment experience.  And, it is the very reason why we diversify and why we implement active risk management strategies into our portfolios. 

 

Our Navigator portfolios shifted to a more defensive position last May.  And, if the current market weakness continues, and our “Bear Market Indicators” are triggered, we will make further adjustments to our portfolio allocations – even shifting to our full “Bear Market” plan if and when it is indicated.   We will diligently follow the market signals and we will diligently follow the plan.  And, we have confidence in the long term integrity of the plan.

 

After 34 years as an investor and an advisor, I can no longer count the many times that we have been rattled by the markets.  When they happen they seem enormous, but over time their impact fades.

 

I still believe in the value of diversification and in carefully following our “Bull/Bear” indicators.  I also still have confidence in the long term viability of our economy and markets.

 

If you have questions or concerns, please call me at the office at 801-756-2220 or on my cell phone at 801-319-0808.  

 

Thanks,

 

Jim Ferrin