By Doug Wells
Partner, Albion Financial Group
June 21, 2022
‘Fortune favors the brave’. Matt Damon re-acquainted America with this phrase several months ago in an ad he narrated for a crypto website. When bitcoin and other cryptocurrencies were posting all time highs. [see video at https://youtu.be/9hBC5TVdYT8]
When the market is going up each day, it is fun to watch your accounts and see how smart you are. Your spouse might even look over your shoulder and comment in awe over how quickly your weekly balances are going up. “Good job, honey”.
Matt got it right that fortune favors the brave. He missed the mark however on what it means to be brave. [Hint: It is NOT simply piling in along with the crowd].
The Federal Reserve met last week. They, like all of us, are concerned that inflation is too high. And getting worse. In fact, just days before their meeting, new data came out that caused them to go off script and raise rates by 75 basis points instead of 50 (100 basis points – “bips”- make up 1 percentage point).
In response, the market (S&P500) fell by 10%. In a single week. Year to date, it is down almost 25%.
NOW is the time that fortune favors the brave.
There are three types of bravery at times like this.
The first, and most important, is the courage to stay the course with a well thought out long term asset allocation designed to meet your long term goals.
If you work with a fee-only investment adviser, you and they likely came up with an investment allocation many years ago; an allocation designed to keep you on course during scary periods like these.
The second is the willingness to actually increase your asset allocation to equities even though they are already down significantly year to date. And – very possibly – will fall even further.
Buying a small amount of equities might help you mentally weather the storm (“at least I was able to buy one of my favorite companies at a lower price”). Maintaining your mental strength is important.
Buying more than a token amount of the stock of your favorite companies is a very different decision. Perhaps, in the past, you have felt under-invested in your long term equity allocation.
If so, now might not be a bad time to true it up.. Certainly better than doing it eight months ago when the markets were at all time highs. If this resonates with you, talk to your fee-only investment adviser. Or Albion. We are always accepting new clients with at least $1 million to invest and would be happy to chat with you.
The final type of bravery is the Matt Damon type of bravery. Buying speculative assets (cyber currency, tulips or going “all in” a gambling spree to Vegas) that are down 60% or more year to date.
Should you do this? To paraphrase Matt …
As these mere mortals – just like you and me – peer over the edge, they calm their minds, steel their nerves with 24 simple words that have been whispered by financial advisers since the time of the Romans … “wealth is occasionally created by brave bold moves. But it is best kept by patience, discretion, diversification and a well thought out financial plan”.
- Albion Financial Group.
- Helping clients make a lifetime of great decisions for over 40 years