Market Volatility: Why Our Phone Isn’t Ringing
The last few weeks of the stock market have been a doozy. Down, up, down, really down. By the time you read this, it could be worse or a non-event.
Market volatility is a big deal these days because it’s a 24/7 world that reports on events and markets around the world.
One of the roles we play as financial planners is preventing panic. Nick Murray, a famous financial author once told a group of us that preventing client panic was our most important task. I was listening. I want you to listen too.
Markets go up and down. Maybe this is a buying opportunity. Who knows? I do know that ten years from now the markets will be up as companies and people progress through good times and bad times. Remember 2008? I do, especially after seeing the movie, “The Big Short”, to remind me once again how painful the last downturn became.
I also remember the very famous CNBC personality who advised going to cash in the dark days of February 2009. Many followed his advice and afterwards nobody else seemed to be willing to sell. The buy and hold investors looked around at that point and observed that no one else was selling and started buying. More investors started buying then because they too recognized it was a buying opportunity.
Why were they buying? They had plenty of cash.
We advise our clients as they approach retirement or significant purchases to have plenty of cash. Sometimes it’s three year’s worth. Now that reduces their long term investment performance, but that’s the price of not having to sell in a down market.
So why isn’t the phone ringing? We always encourage our clients to have up to three years of cash for withdrawal. They don’t like it that the markets and their balances are down, but it’s not affecting their lifestyle. If they did call, our first question would be, “How many year’s cash withdrawals do you have?”
It might be too late for some investors this time around. But having that emergency fund and other short-term purchase monies in cash, CDs, money market and high yield insured savings accounts where there is no market volatility is a wonderful way to sleep at night while the markets churn away around the world.