It’s frightening to see the market fall. We feel it as well. However, it is essential to remember that market declines are a normal, unavoidable aspect of investing.
When stock prices drop quickly, like they did recently, scary news headlines and red numbers are often to blame. Fear, unfortunately, sells in today’s media.
It’s difficult to remain calm. We feel it as well. But our advice is simple: stay calm and make sound decisions to support your long-term goals. We anticipated such days and prepared accordingly. Tenjin AI portfolios are tailored to your time frame. They’ll remain that way.
If you’re tempted to act, remember that this is why we built Tenjin AI: to automatically plan for and handle market drops so you don’t have to. We based our portfolio-allocation advice on the time horizon for each of your goals when you opened your Tenjin AI account. That is, each of your portfolios has been properly risk-adjusted to account for the likelihood and magnitude of a downturn or below-average returns. We anticipated some dips and prepared accordingly.
Also, as with many other aspects of life, making decisions in the heat of the moment is probably not a good idea. Investing is no exception. The more you check your account, the more likely you are to see losses and act in response to a short-term drawdown. And reacting to market declines is likely to reduce your long-term returns.
Warren Buffett, the legendary investor, offers perhaps the most succinct advice on how risky markets feel and what you should do: “The stock market is a device for transferring money from the impatient to the patient.”
Let’s address the key question on many people’s minds: How much worse have markets performed historically after a bad week (a 5% or greater drop in markets)?
The answer is that they appear to perform marginally better. Recent performance simply does not predict what will happen next.
We’ve always lived in a time of uncertainty, and we always will. Even if someone says otherwise, no one knows what will happen, so it’s pointless to guess. We can see why you might feel like you need to try to fix what’s happened, but it’s just a distraction. The most important thing is to think about the future and keep your investments in good shape.
Goal-based investing from Tenjin AI is different from traditional investing in that the investor’s success is measured by how well he or she is able to reach his or her own personal goals, not by how well his or her investments do compared to the market average over a given period.
With goal-based investing, success is reframed based on the needs and goals of the client. If a client’s main goals are to save for an upcoming retirement and pay for college for young grandchildren, the investment strategy for the first goal would be more conservative and the second would be more risky.
We’ll let you know when your goals are getting off track. To make up for any market losses, we may suggest either a one-time deposit or a slightly higher amount of automatic deposits. It’s important to remember, though, that most people who have long-term goals won’t get off track.
There are a lot of things you can do when the market goes down that will help your portfolio, your risk management, and your chances of reaching your goals.
A good thing to do would be to make sure your goals are in line with how long you have to reach them. For example, let’s say you want to retire in 30 years and your goal is to have $1 million. With a 15% drawdown, you would have $85,000 instead of $100,000. Since the drop, the amount saved each month is now $647, up $10 from $637 before the crash. This isn’t a huge change, though. But that $10 makes a difference over the next 30 years, so check to see if any of your goals have gotten off track and need to be refilled.
Part of the point of an asset allocation is to lessen the impact of each asset class by limiting how much the investments can go up or down. But if one of your investments grows in value faster than the others, you’re taking on more risk than you planned. When you rebalance your portfolio with Tenjin AI, you bring your investments back to the level of risk you were willing to take when you started. This lowers the chance that your portfolio will lose value.
Tenjin rebalances your portfolio and improves diversification. When one stock goes up in value a lot, the portfolio shifts to put more weight on that stock. This makes the effect of that stock on the overall performance of the portfolio bigger.
Most of the time, staying invested is the best way to invest, but some people might find the stress too much. If you think you might do something crazy, like switch to 100% bonds, if the drawdown keeps going on, it’s fine to temporarily lower your risk.
Change from having 90% stocks to having 60% stocks, for example. Set an alarm to remind you to look at your portfolio again in a month. We don’t think it will improve your investment returns, but it will make you less likely to make a decision based on your emotions and give you a higher return per night of sleep you lose.
From my own research, I’ve learned that people are more likely to keep an eye on their portfolios when the market is unstable. The only problem is that the more you look at your portfolio, the riskier it will seem. A better plan is to log in less when things are going crazy. It’s better to be an ostrich than a meerkat when stress makes you make bad decisions. Fidelity looked at which investors made the most money and found that it was the ones who never logged in.
Our team of dedicated professionals are here to help you. Book a call and seek advice today if you need more help with your financial plan and personal suggestions.
In the end, when the market goes down, the best thing to do is nothing. Our advice takes into account a market that isn’t doing well, so trying to fix a drop could hurt your returns in the long run.