There is some common advice for people investing, especially those investing for long-term goals: Do not follow the financial markets closely or look at your account values too often!
The “set it and forget it” approach to investing is meant to help average investors stomach the turbulence of investing. This ensures our personal emotions and biases will not interfere with the outcome and allows us to avoid the stress inducing fluctuations of a changing market! Seems to work with our human psychology, right?
But, I think its actually beneficial to follow the markets closely. No, its not so you can time markets – it’s to learn how to watch them and do nothing! It is to build resilience so that you can truly handle volatility when the time comes.
The Time Will Come
And the time will come! One feature of financial markets is that they are pushed until they break. That’s just how they work.
Maybe you have successfully “set and forgot” your investments for long periods of time. Maybe you’ve gone years! And you tell yourself that you will not panic in a downturn.
But then, the market will actually tank, seemingly out of the blue. It relatively quickly tumbles 20-30%, or whatever number starts to get your attention.
Maybe it will be all over the news, people talking about it around the water cooler – you can’t avoid hearing about it. The talking heads will be filling the air with “commentary” that makes you feel anxious and fearful.
Times will, indeed, be uncertain! In that moment, you will not know what the future holds. No one will! So, what will you do?
Can You Do Nothing?
Will you really be able to see your nest-egg that is meant to someday provide for all your dreams shrinking away and do nothing? Will you have the discipline to continue your investment strategy when the sky appears to be falling? Or will you, with knots in your stomach believing “this time is different,” dig up your 401(k) password, login and hit the “sell” button?
Logically, you know that in long-term investing, you need to stay the course, even when things look dire. History and the numbers bare this out for us. If you’re investing in the stock market long-term, hopefully you have educated yourself about these facts.
You will have learned that markets have always grown over time, but they will have “corrections.” Further, they often experience sharp recoveries following these downturns. Its not unusual to have single day returns in the 5-10% range once markets start going up again.
Therefore, you know that pulling out of the market will likely lead to locking in losses, rather than capitalizing on the recovery. Missing out on even a single day can significantly impair your personal portfolio performance.
So, maybe you can resolve this by just being more committed to the set it and forget it approach? In my experience, no. If you happen to have the good problem of living long enough, there will come a market dip that will break your resolve.
During the financial crisis of 2008-09 and the Covid crash of 2020, even my most blissfully ignorant “set it and forget it” friends and family were picking up the phone, asking if they shouldn’t just hit the “sell” button. And some did, much to their financial detriment.
Build Big Muscles
The turbulence of investing is never completely avoidable, so we must learn to deal with it.
For me, its like building a muscle. I might not need to lift something extremely heavy every day, but some day, it may well be an imperative! Can you really expect to have the “muscle” to do that when the time comes if you have not been exercising it?
For years now, I have watched the markets, go up, go down – watched the talking heads be right sometimes, but more often be wrong. I have experienced first hand, how there is often no rhyme or reason for big moves in the market.
It builds my tolerance for uncertainty. Watching not only refreshes my memory of market history but gives me first hand experience with seeing corrections and recoveries. I’ve seen a few now.
I’m not gonna lie, there have been some nail-biter days! My financial faith has been tested on a couple of occasions.
But the goal is that no matter what the market brings us, we who have been building our “do nothing” muscles will be able to take a deep breath and avoid making a big investing mistake. While maybe not exactly feeling comfortable, we will not be as anxious and fearful as those around us who have just been jolted out of their financial slumber.
We will avoid selling low, stay in the market, sure not to miss out on those great return days that history tells us are likely ahead.
But What If?
But what if you’re wrong? What if in hindsight, you should have pulled out, converted all your investments to gold and hid it in your mattress?
Well, if that’s really the state of the world, money might not be the most valuable asset anyway. Hopefully the time you spent not studying the markets, you spent cultivating other skills like farming and animal husbandry. And hopefully you will trade some of your fruits for a well-spun story from an old wanna-be sage, like me?
The only thing you will really have gained by pulling out all your assets is bragging rights. But this is something that you don’t want to be right about!
Uncertainty Will Certainly Come
In his book about uncertainty in financial markets, Same as Ever, author Morgan Housel uses a story to demonstrate how quickly things can change, and how wrong our forecasts can be.
It goes like this. On the morning of September 11, 2001, a news anchor, smiling brightly, proclaimed to the television audience that “it was going to be a beautiful day in New York City!” The weather report said clear skies and sunny. Any reasonable person would bet it was going to be a good day.
But, it would turn out to be arguably one of the worst days. Moments later, a commercial airliner full of people would slam into the World Trade Center, followed by another. Nothing like that had ever happened before. Much about the world was different from that day forward, whether you were in NYC or not.
We all must face the “not knowing” of what will happen today – much less tomorrow. Although hopefully nothing as literal as what happened on 9/11, things will come crashing into our lives, without notice, that we cannot ignore.
How Will You Prepare?
Of course, there’s no one-size-fits-all approach to investing or life. However, I humbly submit that building resilience to the unpredictable can be a powerful way to prepare. Watching the waves of the markets, learning that no one knows what will come, but that something will – is a way to build that resilience.
As you navigate the unpredictability of the financial markets and life, consider this: How will you deal with uncertainty? Will you choose to build the mental muscle needed to not buckle under the weight?
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