Tariffs and Investments Update: How is this Different, and What is the Same?
Image Source: Reuters
This is not the first period of “higher than normal” uncertainty, this is not the last time clients of our firm will go through a market that doesn’t inspire confidence as it had before. Over the years, we’ve written on this topic numerous times:
While the reason for the uncertainty changes (COVID, War in the Middle East and Ukraine, 2008-2009, are events that first come to mind), our message rarely does. Each crisis there are concerns about “this time being different.” While every challenge is unique, our principals for investing largely remain unchanged in both good times and in bad (How we invest in stocks).
For many of our clients, investing is all about the long-run, and over time, investing in the stock market has led to positive results (clients having considerably more dollars than they started with). It is easy to see that picture during times in which account values are rising. It can be considerably harder to stomach that constant look to the future when the market isn’t performing as we’d like in the short term.
What to do if you need cash soon
One of my first recommendations in every financial plan we create for clients is to always establish and maintain an emergency fund above and beyond what you spend in each month. This covers most but not all short-term needs for either taking advantage of an opportunity or covering an unforeseen expense. An emergency fund gives us flexibility during volatile times.
If your needs are larger than what you keep set aside, many of our client accounts contain positions that are not always directly correlated with the stock market (bonds, cash, and other government instruments). The amount we set aside is established for many of our clients through the financial planning process. These funds create a drag on the portfolio while the market is in the green but are vital for the times of a market decline.
If your cash needs are in excess of this established fund and you need to access more, or are taking regular monthly withdrawals from your account, we will be utilizing the portion of your portfolio invested in bonds/cash instead of those invested in stocks. That flexibility allows us to still take advantage of the long-term growth of the market, minimizing the impact of a stock drawdown.
What to do if you don’t have any upcoming cash needs
Follow your plan. We didn’t create a financial plan to only look at during times of triumph, it is also a guide in times where our conviction is tested. As much as many of us would like to, no one has a crystal ball to predict exactly what will happen in the coming days in the stock market with 100% certainty, but we can rely on long-term history when it comes to performance. Even with a recent drawdown, many of our clients are still on pace to achieve success in the goals that we’ve created together through the planning process. Short-term negative performance is expected throughout the years. That doesn’t make it any easier to go through, but it is important to remember that the market doesn’t always go up in a smooth line 100% of the time. During those unsettling times, it is important to limit our emotions in the decision-making process. Answer the 3 following questions:
Has your reason for investing in the first place changed?
Have your economic circumstances changed?
Do you need access to this investment now?
If you answered no to those three questions, the likely explanation on what to do during periods of uncertainty is to maintain the course of your financial plan. If you answered “yes” to any of the questions above, or you would like to review your financial plan, schedule some time with your financial advisor to review your options.
Finally, if you do not have a financial plan, or would like to dive a little deeper reach out to me or a member of our team directly (Schedule a meeting here)
“We don’t have to be smarter than the rest, we have to be more disciplined than the rest.”
-Warren Buffett
Billy Cardwell, CFP®