The metaphors are many: Slow and steady wins the race. It’s a marathon, not a sprint. Little strokes fell great oaks. When it comes to maintaining wealth, these adages hold true.
At Bartlett, we prefer to use a baseball analogy, “We aim for singles and doubles, not home runs,” emphasizing patience and well-researched “base hits” — not happy accidents, sudden windfalls, or a “home run” mentality — as the keys to long-term success. In times of both economic turmoil, like what we saw in December 2018, as well as the relative calm we’re experiencing just three months later, it’s important to heed a few simple reminders.
Minimize emotional costs.
There are two major ways investors can get sidetracked by fluctuating markets: “Performance chasing” describes the tendency to embrace risk when times are good and the stock prices are rising. At the other end of the spectrum is “market timing,” the temptation to act out of fear and eschew risk when the market is falling. Research shows that making rash decisions, in good times or bad, results in what are known as “behavioral penalties” that can undermine overall investment performance by as much as three percent.
Maintain Proper Perspective.
History tells us it’s normal for the market to perform poorly every few years, and to pull back as much as 10 percent every 12 to 18 months — proof in spades that you can’t time the market, and that it’s very dangerous to try and do so. In our 120-year history we’ve seen this time and time again, and that’s why we encourage our clients to remain calm and confident even in the face of uncertainty.
Build an all-weather portfolio.
A well-designed investment portfolio will naturally perform well over time, paralleling growth of corporate profits and dividends. But no portfolio is immune to bear markets, recessions, and other interruptions. The key is to adopt a long-term strategy that’s based on a sound Investment Policy Statement (IPS). In good weather, keep your eyes on the horizon and in bad weather, take faith in historical perspective.
Keep the right safeguards in place.
Bartlett advisors spend a lot of time making sure they understand clients’ vulnerabilities and risks, and planning in advance so that they never feel seduced by reactive behaviors. A retired person, for example, should have one year’s worth of income in cash, bonds, with other assets safely invested in intermediate and longer-term vehicles to protect against unforeseen events. If you know you have those safeguards in place, it will go a long way to making you feel comfortable as the market experiences normal ebb and flow.