4 Takeaways for Investing in Turbulent Times
This blog post was originally published on May 26, 2021. It was updated on August 8, 2022.
It’s been one heck of a ride, that’s for sure.
In March 2020, we were in the beginning stages of a global pandemic that most had never seen in their lifetime. Uncertainty was extremely high, world-wide markets dropped more than they had in a long time and the future seemed bleak.
Fast forward to mid-2021 and we were at or near all-time highs in the U.S. stock market.
This year, however, things are looking bumpy again. So far in 2022, we’ve seen the U.S. economy and stock market struggle as the impacts of high inflation, aggressive monetary policy tightening by the Federal Reserve, and the Russia-Ukraine war have radiated throughout the market.
What are some of the takeaways we all can learn from this experience? Here are a few that come to mind.
1. Commit to a strategy – While building an investment portfolio rooted in the academic science of investing is fairly easy, sticking with it in times of extreme stress is really hard. Behavioral finance suggests we as humans have flaws that tend to short circuit our long-term goals. We are ill-equipped to rationally look out decades in the future and to set an investment course that will give us the highest probability of success and stick with it, particularly during volatile markets.
The lesson here is to recognize our short comings, and mentally prepare for the tough times by committing to a written investment strategy that is customized to meet your specific goals.
2. Diversification – Rather than gamble on a handful of U.S. stocks, invest in a globally diversified portfolio gaining exposure to thousands of companies, large and small value in the U.S and abroad. As Nobel Prize laureate Harry Markowitz famously said, “diversification is the only free lunch in investing.”
3. Understand what you are invested in – It’s paramount that you understand what you are invested in and the reason for doing so. A balanced portfolio will likely have stocks, bonds, and perhaps other “alternative” investments with each playing an important part in the overall success of your strategy. The better your understanding, the more likely you are to stick with your strategy.
4. Plan for a long life – With ever increasing medical breakthroughs, many of us will likely live a long time, and that means we will also likely spend more on health-related expenses. Having a portfolio with a healthy allocation to equity exposure is important to provide the expected long-term growth needed to meet these expenses.
Over the past year, we’ve all seen how much the market – and the world – can change in just a short time. But these changes should not throw your investment strategy off course.
Contact me or another Kaufman Rossin Wealth professional to learn more about how you can adapt your investment approach to work for you, even in turbulent times.
Charles Sachs, CFA, CFP®, is a Chief Investment Officer at Kaufman Rossin Wealth, LLC, a Registered Investment Adviser.