Robin Bess - Money Matters

A year ago, at the end of March 2020, the S&P 500 was down nearly 20 percent and the world was scrambling into lockdown. Many experts wrote articles telling us where we would be in a year. I do not remember reading any that said the S&P 500 Index would be up 56 percent over the next 12 months. But that is what happened. 

I did not predict any of that. I never do. I often talk about how we should be prepared for market downturns once or twice a decade, while accepting we just cannot know when they’ll happen. 

We cannot predict financial crises, but we should plan for them. That is why I always recommend having a trusted financial advisor, a fiduciary who puts your interests first, who can help you understand the range of possible outcomes and create a plan tailored to your goals and acceptable levels of risk. 

Sticking to long-term investment plans in the face of such extreme uncertainty was not easy. I have so much appreciation for the investors I work with who when the market was nose diving and they could see their earnings disappearing quickly, stuck to their plan and staying in the market and are now enjoying the rewards of doing so.

We were all stressed out last March. There was pressure to “do” something, to make changes just for the sake of reacting. People might get out of the market in an effort to reduce uncertainty. But getting out of the market can actually increase uncertainty because it can force investors to make a difficult decision: choosing the best time to get back in. 

This highlights something I’ve long believed to be true: while all investments have risk, many people who think they’re investing are actually gambling. It is a really simple distinction for me; if you’re trying to time short-term market movements, you’re gambling. 

Staying focused on a long-term strategy during times like the past year is hard work. Short periods like the first quarter of 2020 and the past year are not signals of future performance, but reminders of just how hard being a long-term investor can be. We did not know returns like that would come this year, but we knew we needed to be in the market to capture them when they do show up. 

As I have said before, every crisis is different, but I think the best way to deal with them is always the same. We can’t control crises, but we can control our response to them. You want to be prepared to deal with the unexpected before it happens. Not when you are stuck in the middle of it. 

What is the next normal? It’s expecting uncertainty and committing to a plan that addresses it. It’s rising above the temptation to make changes when things get tough. It’s understanding the difference between investing and gambling. And it’s remembering how good it feels when things work out according to plan. 

If you don’t already have a plan that includes crises among the range of possible outcomes, it’s never too late to create one. This is not the last crisis any of us are likely to experience. If we make thoughtful planning the new normal, we’ll all be ready for the next normal.

Robin Bess is a financial advisor and director of client services at Cambridge Financial Services.