In light of the recent market and economic developments, we have received this question from a few of our clients and wanted to share our thoughts. First off, it is completely understandable that people ask this question. It is a good question to ask and is rooted in people’s desires to make the correct decisions with their long term assets. For that, we commend our clients who are thinking in a proactive way.
We passionately believe in the ideology that every client and, furthermore, every client situation is unique and requires individual planning. We still believe in those principals but offer our thoughts, as it is on the minds of many of our clients.
Acting During Extreme Market Events
We are reticent to recommend that clients make large, dynamic changes to their investment funding levels or allocations during times of higher volatility. Systematic investing into IRA accounts or company sponsored accounts such as 401k’s and 403b’s provide the opportunities for buying at different points into the markets. When we make consistent contributions over long periods of time, we have some of our contributions buying in at all different points of the market, therefore, balancing out buying shares at low and high points. This creates an efficient average purchase price without having to “time the market”. If we turn off our contributions in the down markets, we negatively affect the average and eliminate our opportunity to purchase shares at a discounted price.
Don’t Undo Your Dedication
Over longer periods of times, such as five to ten year increments, there will be instances of market inefficiencies. There will be times when the market is “overpriced” or “underpriced”, meaning the cost of the shares of investments are essentially over or under prices based on the intrinsic value of the underlying investments. We even out these inefficiencies by staying dedicated to a consistent investment schedule. Furthermore, we really don’t know whether a market was undervalued or overvalued until we are able to look back at it with a perfect past perspective.
Inefficiency is Opportunity
We feel that the market may be presenting one of these moments where the shares have fallen in value beyond where they should be due to the projected impact of the pandemic and oil price shocks. This, in our opinion, is the wrong time to turn off or reduce long-term investments. We hear it all the time, “I don’t want to chase good money after bad”, but while the holdings in your portfolio have decreased in value, the ability to buy “on sale” exists. We have said many times in the past that Americans will buy most anything if it is on sale…except the stock market. It is at times like these when conviction and dedication is rewarded. You will never be able to time the market perfectly, so investing on a consistent basis is our preferred way to build wealth over long periods of time.