Stick to the Plan, Not Your Mood
The human mind is geared toward preservation and survival. This includes basic functions like controlling breathing and body temperature. There are reflexive functions like pulling your hand from a hot stove and innate behaviors like seeking food, reproduction, and escaping danger. But often, with the stock market, your reptilian brain can work against you.
In a perfect investing world, investors would love to see a linear 10% return without any dips from now until the end of time. But that is not reality. The reality is there is always volatility in the market. In fact, on average, about once every 18-30 months, the S&P 500 is down 10% or more (called a correction), and a drop of 20% or more happens about once every six years (called a bear market). 3
How is our reptilian brain to handle all the perceived danger and not screw things up? How about getting out at the high point and buying back in at the low point of the market? Wouldn’t it be great if we knew when each high point and low point were? As my dad used to say, “If frogs had wings, they wouldn’t bump their butts.” In other words, there is not a solution or indicator that would make any investor great at timing the market.
I searched the internet recently and asked for the perceived (and occasionally actual) threats to the stock market over the last 10 years. Here was the list that AI came up with for me:
2015 – China slowdown, oil price collapse, fed rate hikes, emerging market stress
2016 – Brexit, US Fears of Recession, Commodities still weak
2017 – Trump administration unpredictability, concern about stock valuations
2018 – Fed rate hikes, Tech sector volatility (Facebook, Apple, etc.)
2019 – Yield curve inversion, trade tensions, global manufacturing slowdown
2020 – COVID Crash, fastest bear market in history (37% in 23 days), uncertainly over economic stimulus
2021 – Inflation surges, concerns about the fed tightening, crypto volatility
2022 – Fed hikes aggressively, Russia invades Ukraine, earnings revisions (especially tech)
2023 – Silicon Valley Bank collapse, persistent inflation, debt ceiling showdown
2024 – Election anxiety, narrow leadership in markets (AI, Mega cap heavy)
2025 – Sticky inflation, valuations elevated, high government debt, geopolitical risks
Yet, with all those reasons to be concerned from Sept 2015 to Sept 2025, the S&P 500 had a compound return of 12.84% per year, or a total return of 251.8%. 1 Money invested in the S&P 500 over the last ten years has more than tripled.
So, then how do we avoid danger without recoiling at the medias perceived next threat? I’d suggest a three-pronged approach. Have plan, lose qualifiers on the market, and have a little faith.
Have a Plan
What are we shooting for? Is it to have the most money we could ever possibly have at all times by seeking out the highest possible return. If that were the case, you wouldn’t choose a beautifully constructed, diversified portfolio. You would choose one sector of the market. Maybe you would choose one stock. Heck, you could take all your money at bet it on black at the roulette table.
OR, you could figure out what is important to you. I’d suggest a worthy goal might be to have enough money to live the lifestyle you want and invest in a way that there is a high probability for the money to outlive you. That seems meaningful enough to me. You could invest in a way that would give you 2, 3, or 10 times that amount, but how much does it add to your life over and above our original premise?
This is not to say that you in any way diminish your dreams. I’m not trying to tell anyone what an appropriate lifestyle is. Put it all out there. But when you really commit the lifestyle and life experience that is important to you, then let’s build the investment strategy with a good probability of accomplishing that, while attempting to take the least amount of risk necessary.
Lose Your Qualifiers on the Stock Market
It’s been almost thirty years since I started helping clients with their investments. The most frequent question I get during reviews is how is the market? Is it a good market, a bad market, an overcooked market, and undercooked market? Do we like the president, do we hate the president? Is there war going on around the world? Are jobs slowing? Are interest rates rising or falling?
The question behind the question is “Please predict the future for me and tell me whether I can expect things to get better or worse in the next few years.” And further, based on this guess, Mr. Advisor, “Do we need to change how we are invested or get in or out of the stock market.”
Let me be the first to tell you that I have no idea what is going to happen in the stock market over the next 6-12 months. And let me also tell you, neither does anyone else.
The market is never good or bad. It just is. Think about long-term average range of returns and volatility, rather than the latest headline. If your plan needs an 8% rate of return, your advisor will likely put together a mix of asset classes that have collectively averaged that over a long period of time. It doesn’t guarantee anything, but we don’t often deal with guarantees (if you need anything more than a CD rate of return), we deal in probabilities.
From there, let it breathe. Spend more time doing things that are meaningful to you and less time thinking about what your daily performance was. This leads me to my third point:
Have a Little Faith
In a professionally managed portfolio, you may own stocks in some of the best companies in the world, run by some of the brightest people in the world. Regardless of the economic situation, it is those people’s job to find a way to make changes to maintain or improve earnings. Don’t think of it as a nameless, faceless “market”. Think of it as army of brilliant people with significant resources trying to improve the value of their company and your investments.
Technology is your friend. How do companies continue to get better earnings or profitability? They continue to be more efficient with how they do their work and improved technology has a lot to do with that. Data management, analytics, targeted marketing, supply chain, you name it. Now we have AI. Things are about to get on hyper-speed.
Lastly, “this too shall pass.” The apocalypse de jour will get better. In the first quarter of 2020, the S&P 500 was rolling with new all-time highs. Then COVID hit and market went down 37% from Feb 12 to March 23. Do you remember how long it took for the market to get back to new all-time highs? Just under five months. That year, the S&P 500 finished with a positive 15.6% performance. 2
I could give you a bunch of examples like COVID where the market went down a bunch and then recovered. The important thing is to stay invested and follow your plan. That is why advisors have a job. It’s not to pick the best investments. It is to help manage the behavior of your god given reptilian brains. 😊
1 S&P 500 Data
2 The Coronavirus Crash of 2020, and the Investing Lessons it Taught Us (Forbes, Feb 11, 2021)
3 How to Handle Market Declines, Capital Group
The views stated in this article are necessarily the opinion of Cetera Wealth Services, LLC and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to the volatility of the markets mentioned, opinions are subject to change without notice. Information based on sources is believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.
Investors cannot invest directly in indexes. The performance of any index is not indicative of the performance of any investment and does not take into account the effects of inflation and the fees and expenses associated with investing.
All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful.
