“The definition of insanity is doing the same thing over and over again and expecting a different result.”
“Past Performance is not a guarantee of future results.”
Somewhere between these two quotes there is a balance that we all must strike if we are going to successfully navigate the stock market.
Last Saturday we woke up to the news that the United States had attacked Iran. Geopolitics aside, this war has the potential to impact all of our 401(k) accounts. Iran is an oil rich country in a region that provides oil for much of the world. It borders the Strait of Hormuz, a choke point for global shipping. In response to the attack, Iran has fired rockets into several bordering countries. All of this creates uncertainty that could cause stock markets around the world to falter. So, what is a retirement plan investor to do?
Some investors try to time their move out of big market downturns in the past, only to find that getting out at the right time is hard, but getting back in at the right time is even harder. Despite how tempting it might be, it would be insanity to attempt to do it again expecting a different result. Resist the temptation to flee the market.
And while past performance is not a guarantee of future results, the past does guide us in how to best manage a crisis. For thirteen days in 1962 the world was on the brink of nuclear war when the Soviet Union placed nuclear missiles 90 miles off the coast of Florida. On September 11, 2001, a terror attack destroyed the World Trade Center and damaged the Pentagon. We have had several gulf wars, trade wars, and Brexit. In the immediate aftermath of each of these events, the U.S. stock market (S&P 500) dropped, and it would have been tempting to get out of the market entirely. But more often than not, six months to one year later the market tended to be higher than before the shocking global event.
Those who panicked and got out of the market were left trying to decide when to get back in. In some cases, like the covid downturn in early 2020, the market rebounded so quickly that it was hard to get back in before the market was again above the price at which they sold.
Those who were patient and waited for a rebound were rewarded for their patience. In addition, those who continued to purchase shares during the market downturns were able to buy at a lower price and take advantage of the rebound.
All these events have two things in common. On the front side they were very scary. On the back side, they are a distant memory. This war in Iran will take its own place in the list of market moving events that somehow didn’t shatter the market. So, while past performance is not a guarantee of future return, history suggests that staying the course and allowing your account to ride out market volatility is not only a viable option, it is historically the best option.
Finally, if you are struggling to resist the temptation to flee the stock market, your portfolio may be more aggressive than your risk tolerance allows. Continue to resist the temptation to flee until the stock market recovers. Then speak with your Francis Financial Planner and reduce your portfolio’s risk to a level that is more appropriate to your risk tolerance. That way you will be better positioned for the next market shattering event.
Did You Know?
Your employer sponsors this financial wellness benefit from Francis. The benefit connects you with down-to-earth financial planners who educate and advise on any money matters…without the sales pitch. We are exclusively engaged by employers like yours and have no investment products to sell, so you can feel confident that you will always receive objective advice.
Your financial planner will help you set priorities and achieve your money goals, without judgment or financial jargon. Know that all discussions are kept strictly confidential. This service is offered as an employee benefit with no per-session co-pays, so you can meet with a financial planner as often as you wish. Services are paid by your retirement plan or your employer.
Connecting with a financial planner is easy! Here’s how:
- Visit FrancisWay.com > Services > Participant Portal
- Call (866) 232-6457
Download the free mobile app (Search for Francis LLC)
Visit the Learning Library
