The year 2020 was a landmark for many reasons, particularly for its impact on the financial markets. The swift decline and subsequent rebound in the stock market during the pandemic underscored an essential investing principle: the importance of a long-term perspective.
Volatility is Normal
For nearly three decades, I’ve been telling clients that volatility is normal. Markets that go straight up or down are not. Market fluctuations, as vividly demonstrated in 2020, are an inherent part of investing. The drop caused by COVID-19 and the Global Pandemic, while severe, was not unique in market history. It’s essential to recognize that such shifts, though challenging, are expected elements of the investing experience. History is on the side of those who don’t overreact and make emotional choices.
Emotional Reactions vs. Strategic Decisions
During market downturns, like the one in 2020, it’s natural to feel anxious. However, strategic decision-making, rather than emotional reactions, often leads to better long-term outcomes. This approach was particularly effective for those who maintained their investment strategies through the downturn. When markets correct, we have three choices: 1) buy more, 2) sell into the downturn or 3) do nothing. Two of those choices are generally good options. Panic selling into a down market is usually the wrong choice. Although many people try, investment professionals know that you cannot time the market. It’s time in the market, not timing the market, that provides the best probability for favorable long-term outcomes.
At Island Wealth, we believe a solid financial plan, coupled with good cash flow management, is key to staying invested through market ups and downs. These strategies aim to help investors withstand short-term fluctuations without compromising their long-term goals. Reflecting on the recovery post-2020, it’s easy to appreciate the value of a long-term focus. However, it’s crucial to acknowledge that market downturns are a part of investing. The resilience shown by investors during the 2020 crisis serves as a reminder that while such events are challenging, it is important to focus on the decades rather than the days.
Island Wealth’s Steady Approach
Island Wealth Management’s philosophy during times of market uncertainty remains unwavering. We prioritize a comprehensive, personalized approach that considers not only investment strategies but also cash flow and overall financial health. Many of our clients who remained steadfast in their personalized financial plans, even during the 2020 downturn, saw their investments recover and grow. We spent countless hours reassuring our clients that the plans we created together during less stressful times were in preparation for times like these.
Maintaining a long-term perspective and a well-rounded financial plan helps investors navigate these periods with greater confidence and emerge stronger. Not to mention, the sense of fulfillment we get from helping people tune out the noise and make informed decisions is why we love what we do.
Looking to build a financial strategy that can weather market volatility? Reach out to Island Wealth Management. We’re here to help you develop a plan to help you stay calm through the market’s inevitable ups and downs.