As Casey recently alluded to on an episode of the Mullooly Asset Show, when it comes to investing, getting out is easy, it’s getting back in that’s the hard part. In fact, I’d go so far as to say it may be the most difficult decision in finance. Nobody wants to jump back in just before the next leg down, but market bottoms can only be identified in hindsight. It’s paralyzing. Attempting to tackle the “most difficult decision in finance” alone has recently driven a slew of investors to our firm seeking help.
While their specific stories are all different, they ultimately arrive at the same conclusion. “So, I did a thing”, with “the thing” being bailing out of investments for the safety of cash.
I get it. Between the bond selloff and 80% of stocks being down on the year, there’s been very few places to hide for the last six months. Maybe it was that last peek at the investment accounts dropping that made them do it? Or perhaps catching a particularly gloomy prognosticator’s most recent doom-cast on TV was the final straw? Regardless, it felt like the right thing to do. At least for a little while. Until things settle down.
While things haven’t settled down just yet, these folks are seeking our help because they know enough to realize cash isn’t going to cut it. And they’re right. With inflation continuing to run hot and goals, dreams, and aspirations to fulfill, very few have the luxury of parking their net worth in cash or CDs and calling it a day. Growth is what makes it all work, and a portfolio designed to avoid risk is a portfolio designed to avoid growth.
But even knowing all that doesn’t make the “most difficult decision in finance” any less paralyzing. In life, we often know what we should do, but choose not to anyway.
It isn’t sexy, but we feel the conversations we have with folks facing this particular dilemma are a lot more reasonable than the alternatives. There’s no shortage of people promising investors stock-like returns with bond-like volatility. It would be easy to join the circus and sell the market timing fantasy of nailing tops and bottoms, but I hate clowns and want to be able to sleep at night. I can’t imagine telling somebody with a straight face that I can help them perfectly time their move from cash to stocks (or vice versa). And so we don’t.
Telling someone who’s recently gone to cash that whatever they were doing is probably a lot closer to being reasonable than where they are now is a difficult conversation, but we choose to have it anyway. Carl Richards has a saying that goes, “You may fire me for what I’m about to tell you, but you should DEFINITELY fire me if I don’t”. We tell it like it is, and acknowledge that only some will be prepared to hear it. It’s what we must do as advisors.
Once we’ve mutually agreed that neither we nor anyone else can reliably nail market timing decisions, we can truly get to work. Perhaps a more conservative allocation is in order? Were short-term dollars invested in long-term assets? Can we right size the cash reserve better? Do we need to be more diversified? These are all things our financial planning process fleshes out. But that comes after affirming that our job as advisors isn’t to shield investors from temporary volatility. It’s to put them in a position to survive it (both financially and psychologically), in order to reap the rewards. We know markets are going to occasionally go down, and plan accordingly.