Lately, we’ve been getting the following question a lot: “With all the craziness in the world, aren’t you worried about the market?”
The answer: We worry a lot. But not about the market. Instead, we focus our worrying on what we can control.
Study after study shows that short-term market movements are unpredictable. The evidence also shows that, long-term, you are highly likely to do well in the stock market. as long as you control your emotions and own diversified, low-fee funds. Worrying about the market is, if anything, counter-productive.
Here's what we worry about, on behalf of our approximately 100 clients:
Does each client have the right insurance (life, disability, home, auto, umbrella, long-term care)? Has something changed in their lives to make our previous conclusions dated?
Is there anything else a client can do to lower their lifetime tax burden? For example, can they contribute more to their 401k or to a deferred compensation plan? Do they have enough (or too much) in municipal bonds? Will a donor-advised fund help them maximize their charitable deductions?
Is the mix of stock and bonds still appropriate ? Have a client's circumstances changed, making the client more or less able to face short-term market risk?
Have a client's financial goals changed? For example, did they decide they want that second home, previously an unlikely purchase? Did their child's college choice change to a much more (or less) expensive option?
We reach out to every client at least quarterly, and we target an annual update of their financial plan. That's our opportunity to re-assess their entire financial picture and to adjust their plan for changes in their situation. Staying on top of this allows us, and our clients, to sleep easier.
So does a sober understanding that the market will go up, and down, and up, and down -- and no amount of hyperventilation (or buying and selling) will change that.