We are all witnessing the downside of increased volatility in the financial markets and it is natural to wonder how this may impact our wealth. While Zimmerman Wealth Management, LLC remains vigilant and continues to monitor market developments, we do not see a need for significant portfolio adjustments as a reaction to these events.
A few important thoughts:
1. The financial and general press accentuate the “now.”
Fear is a natural reaction when markets are moving down rapidly. However, we believe that fear is not a viable long term investment strategy. Calmer heads usually prevail. Staying glued to a business news report may not be the best use of your time when we are in a decline driven by speculators.
2. There is no free lunch
The reason we expect higher long-term returns on equities (stock investments) as opposed to cash and bonds is because equities have greater volatility. There is no free lunch in the financial markets, and we have to accept volatility in times like this in order to earn the expected higher long-term returns. ZWM takes a strategic, long-term view on asset allocation and your portfolio is invested in a model based on your unique financial and personal circumstances.
3. Market timing does not work
Market timing is the holy grail of speculative investing. If one could do it consistently, the rewards would be great, but speculative investors typically end up with sub-par performance due to the seeming impossibility of getting the timing just right. Despite much attention in the media to being tactical (i.e. market timing), we are not aware of investors who have over the long term, consistently timed the markets with significant success. Although this holy grail does not exist, the good news is that one does not need a crystal ball to invest with success. The benefits of a long-term, strategic view are compelling, but the higher returns associated with investing in the equity markets is dependent on being disciplined through both good and bad times.
4. The importance of diversification
One of the important lessons from the past is that diversification works. While this may not be the case on a day-to-day basis, a mix of different types of assets provides a smoother and more stable ride for your portfolio. As an example, while equities have performed poorly in the past few weeks, most of our bond and some alternative funds have provided positive returns. The time frame is extremely short, and no one knows how the funds will perform in the next few weeks or months, but it is another testament to the benefits of diversification.
As your financial fiduciaries, we care deeply about your financial well-being, and it is in times like these that it is important to stay calm and refrain from making decisions that may be detrimental to your long term wealth. In the meantime, we will monitor for rebalancing opportunities that may add value to your portfolio.
As always, please do not hesitate to contact us if you have any questions or concerns.