Confidence in the Face of Uncertainty

By: Sam Swift, CFA, CFP®

Over the last few weeks, I’ve noticed a sharp uptick in cautionary pieces arguing that investors should be wary of these market highs. Many of these arguments, it should be noted, have been put forth over the last five years by the same players—if you say something often enough, you’re bound to eventually get it right. Maybe some are chasing the recognition that seems to come with “calling” the next crash or something. I don’t know. And I don’t know if the market will or won’t pull back anytime soon. Flip a coin. My point is that it doesn’t really matter and it does no good to devote any resources to short-term market prediction.

With this uptick in uncertainty and faltering investor confidence, though, now is as good a time as any to step back and evaluate the big picture. Here then are some principles for investors to continue to have confidence in:

• Have confidence in the long-term power of markets. The short-term is random and it’s impossible to know what will happen. The long-term is predictable and powerful even in the face of that short-term randomness.
• Be confident that nearly all of the headlines out there do not have your best interests in mind. They exist to entertain or sell you something.
• Have confidence in what we know. Risk and return are related—you can’t have one without the other. There is no short-term downside protection that can be achieved without sacrificing long-term upside necessary to your financial success.
• Be confident that uncertainty is never going away in the markets. That’s why you get compensated by an equity premium in the first place.
• Be confident that short-term drops are expected over the course of a lifetime, but—importantly—these drops are factored in to your long-term plan.
• Lastly, have confidence in your plan, planning process, and planner. Be confident that you can make the necessary adjustments when situations change for better or worse.

Remember that you have control over the biggest drivers of long-term success—what are you saving, when do you need to live off your assets (retirement date), and what are you spending. Mike Tyson once said, “Everybody has a plan until I hit them in the face.” It’s true. Your plan will get thrown off course for reasons outside your control occasionally, but it’s how you react (or don’t react) that matters.