It cannot be easy to give up ownership over something you are not only good at but that you enjoy. But you do it because you’re thinking about others. You do it because your wife or your kids don’t share the same passion or skill that you have when it comes to managing an investment portfolio or handling the day-to-day finances of your household. You do it because you know that you’re not in fact immortal and your brain isn’t immune from memory loss, dementia, or just plain aging. You do it because upon your eventual, inevitable passing, the last thing you’d want your surviving family members to have to worry about is how to make sense of a confusing financial world they were never privy to before.
We see this all the time with folks. By “this”, I mean we see people putting off doing things until it’s too late. We of course tell our clients that late is better than never, but the other truth that sometimes feels too harsh to voice in certain circumstances is that yesterday would have been better than today. This is certainly true when it comes to investing—thanks to how compounding interest works—and this is likely true for hiring a professional for financial advice and management or getting your affairs in-order for things like long-term care planning. We understand how difficult it is to proactively face something you’d rather not admit and put a measure in place that feels like you’ve inched yourself closer to death or somehow manifested your own demise. But as I tell my clients all the time, putting off the inevitable in this case doesn’t age like a fine wine and embracing the inevitable doesn’t bring the end any closer.
If you can’t take the heat, get out of the kitchen
Anyway, my rockstar 90-year-old client and I were talking about the instances of market volatility we’ve seen over the last month and a half, and he stated matter-of-factly, “Well, if you can’t take the heat, get out of the kitchen.” He’s been an all-stock investor his whole life. This advice, said in this no-nonsense way, struck me as spot on. To me it means that if you can’t stomach volatility and stress, then don’t be an investor in the stock market. While pioneers like Charles Schwab offering commission free trading and fin-tech investing platforms have each played a part in helping to democratize a world that was once only accessible to wealthy people who could afford to pay a stockbroker, there’s a bit of nuance to the widespread belief that everyone should invest. Yes, financially speaking, in a vacuum, everyone “should” invest. Everyone “should” try to passively grow a portion of their savings to help keep pace with inflation and potentially build wealth by investing in the stock market. But from my standpoint, as a person who works with investors and potential investors every day, psychologically speaking, not everyone should invest.
The price is risk
We seem to forget that a commission-free trading world doesn’t mean investing is now “free.” The cost, or dues, of investing, I’m afraid, is still a much larger ticket than the price of a commission back in the day. The price is volatility. The price is risk. The price is losing money in the short-term with the hope of gaining in the long-term. And the key word there is hope—because if you play it wrong, you can lose forever. Time in the market is so much more important than timing the market, and if you buy in and sell out at a lower price than what you bought in for, you lose. If you do that enough times, you stand to lose forever. But if you buy in and avoid selling out for several years, history leads us to believe that you will have gained from investing.1 That’s the other key word—believe. Investing for the long-term requires belief and faith in not just tomorrow, but next year, and five years from now, and so on. History isn’t a guarantee of what the future will look like, which is why investors’ belief and faith gets tested during tough times. No one seems to doubt their belief in tomorrow when they’re making money—that is when investing is easy. Having faith without proof that tomorrow will be brighter becomes a lot harder when you’re losing money. This is the time to gut-check yourself. If you can’t take this kind of heat, then maybe you aren’t fit for the stock market. Not everyone with money is fit to participate in the stock market.
Now that may feel harsh, but I think it’s fair. It’s a reality that not enough people talk about, and it’s a truism that if iterated more often could help save many people from the emotional and psychological shock that comes along with market volatility during tough times. Market drawdowns are a part of the game. They are a natural part of the market cycle. And yet so many investors enter the stock market irrationally believing that day won’t come for them, or even more irrationally believing they can do their part to avoid those days. They can’t, and they won’t. They are along for the, at times volatile, ride.
On Friday, September 6th, the S&P 500 faltered and posted its worst week since 2023. Just one week prior, many indices were near highs for the year. And let’s rewind to the other recent worst-day-in-the-market this year. I’m talking about the first week of August and the market’s two-day meltdown over employment data, the Japanese Yen carry trade, AI bubble agitation, and fears the Fed would need to make an emergency rate cut.
Bad days are sobering
For me, as both a manager of other people’s investment portfolios and an investor myself, I almost feel a bit of relief to see some negativity in the marketplace. To be clear, I don’t ever like seeing people’s portfolio values take a hit—but see above. Bad days are sobering, they are the dues we owe, and they are a very good reminder that the stock market doesn’t always go up. Humans, as a resilient, ever-forward-leaning species, have a very short collective memory. These reminders are healthy and important—as are the reminders that recovery happens, as well, and that such a recovery can come on hot and heavy. Just two days after early August’s meltdown, the S&P 500 had its largest single-day gain of the year at the time. And by the end of the month, the market was very close to gaining back all of its losses in a quintessential V-shaped recovery. We saw a similar story a few weeks ago: after an awful day in the market on Friday, September 6th, the S&P 500 and Nasdaq logged their best week of the year.
Pullbacks are healthy and normal; corrections are healthy and normal
When a stock market has mostly gone up for nearly two years, complacency comes to mind. A stock market that reaches new all-time highs makes me worry about the hangover that will come—it makes me worry about how much we’re borrowing from future returns to experience elation today. Pullbacks are healthy and normal; corrections are healthy and normal. There is comfort to seeing some pullback in the market—it makes me believe we’re making some more room for future growth, and it provides a chance to reassess market conditions and potentially invest at more attractive valuations.
As much as we would like markets to continue rising indefinitely, the reality is that investors should be prepared for eventual declines, and they should develop an investment strategy accordingly. Most people don’t own bonds as a part of their investment portfolio for all-time highs in the stock market. They likely own bonds for predictability and stability, and they are likely considering stock market volatility as a reason—for many, there is a “sleep at night” factor to owning bonds because although their growth potential is less than that of stocks broadly speaking, they tend to handily temper or limit your downside. Far fewer people would own bonds if it was a guarantee that stocks would never go down, but that is not the case. I’d urge you to figure out if you can take the heat in the kitchen and have an investment strategy that fits that risk tolerance. Emotionally jubilant or turbulent times are not the time to make significant investment decisions—I’d urge you to do the work beforehand and make small adjustments if you need to.
So, what does it take to survive natural market fluctuations? Patience, a focus on long-term outcomes, and diversification are essential components of investing. By not reacting emotionally to short-term market movements, by not trying to time your market entry and exit points but rather buying good companies you believe in for the long haul, and by not putting all of your eggs in one basket, you allow your investment strategy the time it needs to work as effectively as possible. That is what we’re here for.
Disclosures: The content in this article is for informational purposes only and does not constitute a recommendation or offer to buy or sell securities. Investing in the stock market is not suitable for everyone, and individual circumstances, including risk tolerance and financial objectives, should be assessed with the help of a financial advisor. Past performance is not indicative of future results. Investing involves risk, including the potential loss of principal. There is no guarantee that any investment strategy will achieve its objectives or that any investment will appreciate in value. The stock market is inherently volatile. All investments carry a certain degree of risk, including the potential for loss. Market volatility, fluctuations in securities prices, and the potential for loss of principal should be carefully considered by any investor. Diversification and asset allocation strategies do not guarantee profit or protect against loss in a declining market. Investors should consult with a financial professional to ensure that their portfolios align with their risk tolerance and financial goals. The opinions expressed herein are those of the author and are not intended to serve as specific advice tailored to the individual investor’s needs. Any action taken based on this information is solely the responsibility of the investor. Examples or hypothetical situations provided are for illustrative purposes only and do not reflect actual performance of any particular investment or strategy. Statements about market events, volatility, or future performance, including references to historical market fluctuations, are subject to change without notice and are based on current market conditions, which may change. Any references to specific events or market changes are purely coincidental and may not be relied upon for future investment decisions.
