This Time It’s Different

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By Michael Gold, CFP®, MBA, Founder and CEO, Wealth Advisor

These are the four most dangerous words that an investor can ever utter.

  • The stock market crash in 1987… investors said,

 “This time it’s different.”

  • The bank savings and loan crisis causing a ‘90 ‘91 recession… investors said,

“This time it’s different.”

  • The tech bubble bursting in 2000… investors said,

“This time it’s different.”

  • The tragic and horrific events of 9/11… investors said,

“This time it’s different.”

  • The financial/housing crisis of 2008-2009… investors said,

“This time it’s different.”

  • The Covid Crash of 2020… investors said,

“This time it’s different.”

Yes, they are right that the causation of the stock market correction was different in each one, however, the one common thread all of them had, was that everyone, every correction and/or bear market gave birth to a new bull market reaching higher highs in the market PERIOD.

Risk in the stock market tends to be shorter-lived, even in the grizzliest of bear markets. If you know what you are doing, bear markets and corrections can provide incredible opportunities to capitalize on investing in great companies at very attractive prices, as well as the opportunity to become even more tax-efficient through a variety of tax strategies that present themselves in market downturns.

However, people who try to “time” or “chase” the market almost always end up losing. When economic downturns devalue investments, many investors panic and cash out at the worst possible time. A less obvious emotional reaction can lead to putting money into “safe” investments that are guaranteed to lose money. The right advisor can help you understand the real risks inherent in the marketplace and can recommend the right diversification strategy. Many times, the perceived risk of market volatility are not actual risks and, in many cases, they can work in your favor.

I completely understand the temptation to pull money out when it looks like your investments have tanked, hey you would not be human if you did not feel this way. But, when you do this, you are locking in the low value of your accounts rather than letting your investments rebound before you withdraw.

Risk is inherent to investing. If this is the first article of mine you are reading and have never heard me speak before, I will share what many already know. I am terrified of flying on a plane. I am 6’4”, 195lbs and am trained in Brazilian Jiu Jitsu, yet get me on a plane and I am even more scared than my six-year-old daughter. Yes, air travel carries some risks— we all know that, but that is the price we are all willing to pay in order to be across the country or on the other side of the planet in just a few hours. If you want to enjoy decades of financial freedom keeping up with inflation, taxes, and ensure you never run out of money, the cost of admission to investing is market volatility, its price we pay and we have to endure some financial turbulence from time to time. Just like some bumps at 35,000 feet, there will always be volatility in the markets. As long as you have a great captain and crew, you will land at your destination safely and might even enjoy the ride and definitely enjoy your life.

It is important to recognize that the only time you are guaranteed to lose money when markets are down is when you withdraw money from your investment accounts at that time. This is like hitting the eject button on your flight across the country; you will parachute down somewhere like in Idaho and never make it to your destination. (I have nothing against Idaho and actually like potatoes, but if I am going to LA, this is a problem) If you have a goal based financial plan, with two years of cash-flow in reserves, this volatility should already be factored in and accounted for in your financial plan. If not, this is the perfect time to overhaul your financial plan to get back on track.

In many cases you might be goaded to hit that eject button, but I cannot stress enough to hang tight. During recessions and bear markets you will often hear investors and market prognosticators say things like:

“Since the current economic data is terrible, consumer confidence is down, unemployment is at an all-time high, and the outlook on the world seems grim, nobody is going to spend money the way they used to. If consumers do not spend money, then companies can’t make money, and if that happens, the markets likely won’t recover.”

Nothing could be further from the truth. Remember, the market is not looking at today’s data, but it is always looking at tomorrow. The market cares much more about where it will be in the future than where the economy is today. I talk a lot about historical perspective and historically, bull markets tend to emerge when investors are feeling the worst about their outlook for the future. Remember how you felt about the market at the end of 2008 and beginning of 2009, or in the depths of the COVID-19 crash in March/April 2020? Investor sentiment about the outlook was terrible and the rest is history.

As you can see, so far this year has been anything but normal, and there are more than likely going to be even more plot twists as we enter the spring, summer, and fall. While the global geopolitical situation seems extremely volatile and uncertain and we may have some hard months and/or even years ahead of us, but it is not the first time our nation and the world as a whole has faced challenges like this.

While our economic woes may not be new for history, they very well could be new for you. In difficult times like these, it is helpful to have a trusted advisor that you can turn to for financial guidance and support. If you do not want to go through this economic crisis alone, our team at Gold Family Wealth, LLC is here for you. Reach out to me at info@goldfamilywealth.com or (800) 303-2533 so we can have a no obligation conversation about where you are and how we may be able to help.

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