What should investors do now?
Whenever the markets get crazy people ask how they should react to the craziness. But that’s the wrong question. The question is not how folks should respond—it’s what should investors have done to prepare. Investment is a forward-looking process. Markets try to anticipate the next set of data. Sometimes they get it wrong, which is why the stock market has predicted 10 of the last 5 recessions. But if you react to the markets’ craziness, you’ll go crazy yourself.
Stressing out over the economy is no way to invest—and it’s no way to live. A portfolio should be your servant, not your master. It should provide the income, or growth, or stability to help you do what you want in life—not the agita or heartburn or anxiety to cut your life short.
Cycles happen. Businesses get overconfident and overinvest when demand doesn’t justify the capacity, then they cut back and get overly cautious. The truth, as always, is somewhere in the middle. And so we cycle through bouts of optimism, mania, contraction, panic, skepticism, and optimism again. Investors should have a plan that anticipates these regular cycles.
Managing money is really about managing risk. And the first step in managing risk is managing yourself—what your needs are, what your goals are, and what your resources and limitations are. A sensible investment plan takes all these things into account. So when times like these hit and people wonder how you can be so calm you can smile to yourself.
Investment isn’t so hard; it’s planning that’s the real work.
Douglas R. Tengdin, CFA
Chief Investment Officer
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