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Why it Pays to Stick to Your Financial Plan and Tune out the Media

Updated: Dec 23, 2020


As the COVID-19 recession was gaining full steam and the stock market seemed to be tanking 10% a day, I began to save articles with professional investors and media prognosticators sharing their thoughts about what would happen in the coming months. Unfortunately, with the decline of paper media, news outlets cannot sell advertisements with boring, age-old advice such as “stick to your plan” or “stay the course.” Instead, we saw headlines like these:

The truth is these pundits could very well have predicted the future. In fact, if they were correct, they would make a name for themselves and become infamous for their prediction.


The fact is their job is to make the front page, obtain viewership, and simply put, sell advertisements.


So what is a regular person to do? How do we make rational decisions when fear is all around us? I could continue this post about creating a financial plan that is focused on you, your family, and your vision for the future. However, I wanted to write about stock market volatility so you can mentally prepare for the next “correction” and become comfortable knowing that these events happen and they happen with regular frequency.


HISTORICAL MARKET VOLATILITY

Before I do what the media never does, go back in time, and prove the predictions to be flat out wrong, let’s look at market volatility. This chart from JP Morgan is an all-time classic and is updated each quarter. I was astounded at what it showed as of September 30th, 2020:


Look at 2020. The market, represented by the S&P 500 was down 34% at one point in 2020. However, as of 9/30/2020, it was up 4%. Now, look back in time; nearly every year the market is negative at some point and yet most years the market ends up positive.


In fact, I want you to take away 2 things.

  • First, it is rare for the market to have a negative year. From 2000-2020, the market was negative 5 times. 3 of which were the tech bubble in 2000-2002. From 1980-1999, the market was negative just 3 times!

  • Second, volatility during the year is very common.

HOW COMMON ARE 10%, 20%, 30% AND 40% DECLINES?



  • 10% declines occur every 2 years.

  • 20% declines happen every 5 years.

  • 30% declines happen every 8 years.

I don’t know about you but seeing this gives me some comfort knowing that another market correction will happen, and I can ride it out.

RESULTS OF THE PUNDIT PREDICTIONS

Since March 23rd, the Stock market up 51%!



Since April 2nd, the Stock market up 40%


Since May 2nd, the Stock Market up 22%

To Be Determined how the next decade pans out.


THE VALUE OF WORKING WITH A FINANCIAL PLANNER


Financial Planning is not just about managing investment portfolios. More importantly, it is about having someone you trust to guide you when the unexpected occurs and to make sure your family has a trusted resource to rely on.


At Abel Financial Management, we are local, family-oriented, and truly independent financial planners with a mission to help you make smart decisions with your money. If you or someone you know is faced with decisions like these, we invite you to come to have a conversation with us.


Steve is a CERTIFIED FINANCIAL PLANNERTM and Partner at Abel-Financial Management. He can be reached at sstern@abel-financial.com or at 410-307-1202.

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