When you were a kid, did you ever roll out of bed looking for cartoons on TV, then see televangelists like Jim Bakker and Pat Robertson, realizing it was Sunday, not Saturday? I do.
Later, do you remember the scandals and rumors about them not practicing what they preached? And then getting on TV to admit infidelity which became the ‘Crying Jordan’ meme before there were even memes?
Jimmy Swaggart appeared on television in 1988 and told his congregants, “I have sinned against you,” as he admitted his affair. In the last few weeks, I have also sinned—against myself and my philosophy. For those of you who don’t know, I spent the first part of my career as a trader, where instead of investing long-term, our positions might be for just a few seconds. It was a lot of fun, and I am glad to have had the experience. However, as I have gotten older, I realize that for 99.99% of people, that trying to pick the ups and downs of the market is a fool’s game. I have avoided the temptation of using my old tools for clients throughout the ups and downs of the last several years.
This time was different.
What caused me to sin? It’s simple. It started with fear; then, it got into overconfidence bias. Late in March, I held a webinar for clients. I discussed what was happening in markets and said that the longer the lockdown continued, the longer I thought that the recovery was going to take. And at that time, I was counseling clients with excess cash to put money to work in the market.
But then markets made what seemed to be a miraculous recovery in April based on the CARES Act and Federal Reserve actions. In my mind, the market moves were and remain premature based on the most likely trajectory for the economy. As a result, I feared putting clients’ new money into the markets on what I thought would be an imminent market drop of 10% or more. With the volatility being what it was, I was all but certain that such a decline would happen. So when clients did make their monthly contributions, I held the money as cash for several days.
For the first couple of days, I was right. The S&P 500 fell 5% in the first two days of the next trading week. Wednesday, the market bounced, retracing most of its losses. By midday Friday, I gave up and decided to put my clients’ money to work. Then the market rallied into the close. And global equity markets have continued to rush higher in the weeks since then, with the S&P recently erasing its losses for 2020.
This whole story shows how in the face of fear and uncertainty, we make mistakes with money and investing, which, in the long run, probably won’t mean very much. If your horizon is 30 years or more and the price you sell at is 100, will it matter if you bought at 2 or 3? Especially if your total assets are 10,000?
And the story reaffirms my methodology. To have a high likelihood of financial success, invest your funds regularly, and let capital markets and compounding go to work. Don’t worry what the pundits and “analysts” are saying. Forget whether people think markets are too high or too low. A good plan and a good system should lead you to where you want to go.
Russell D. Rivera, CFA, CFP® is the Founder and President of Voice Wealth Management (Voice) in New York, NY. He also likes to think of himself as a Personal CFO and Financial “Therapist” for entrepreneurs, young professionals, and their families. He helps clients make prudent financial decisions regarding spending, saving, investing, and planning while giving a voice to the individual client's financial priorities and experiences.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.