Even the most patient investors may begin to doubt the soundness of their investment strategy when the markets become as turbulent and perplexing as they have over multiple periods. Over the years, we have witnessed a number of challenging markets come and go, so we can certainly understand if some people find the down periods unsettling.
As an investor, one of the first things you must understand is that occasionally, and sometimes significantly, you may lose money (uncrystallized paper losses) while aiming for a decent return. This is all part of the risk you accept in return for higher expected returns on your investments. It’s also crucial to keep in mind how frequent market corrections and extended bouts of volatility are. The stock market experiences a “bear market” that closes 20% or more below its previous all-time high every five years on average. Nobody, including Private Capital, can forecast when, where, or how this “bear market” will bottom out. We can only draw conclusions from the historical fact that every bear market bottoms out eventually and within time surpasses previous highs. As a long-term investor, you should be guided by history, as opposed to the media.
Giving in to a bear market inevitably could turn out to be a costly oversight from which many investors’ financial plans never fully recover. Remember that you have already experienced the risk of a dropping stock market at this stage, so selling now will just lock in a loss that, over time, is usually closer to the event’s bottom than you think.
What Have Private Capital Been Doing
As a Private Capital client, you already own a low-cost, globally diversified investment portfolio with an average of over 23,000 holdings that is tailored to your specific risk tolerance. Also, not all of your assets are invested in the stock market. You have emergency cash reserves, and for most of you, between fifty and eighty five percent of your investments with Private Capital are equity-weighted. The performance of the stock market as reported in the media should not be used as a benchmark for your portfolio.
While we can’t protect you from short-term volatility, we can help you increase the likelihood that your long-term financial objectives will be achieved. Using Coronavirus as an example, it is difficult for anyone to predict how and when the epidemic would end or how the stock markets will respond. During down periods, we can relatively confidently say, based on history that “this too will pass.”
Private Capital are discretionary investment managers, and much like a duck gliding over a pond, we have been busy paddling like hell underneath. We rebalance our portfolios on a dispassionate basis, usually towards the end of January or when the equity/fixed income ratio shifts by 5% or more. When your portfolio exceeds the 5% ratio, we are hard at work setting up trades that are prepared to sell a tiny piece of the fixed income component and purchase stocks. We are literally “buying low (equity) and selling high (fixed income)”; this is sound portfolio management. To that end, we firmly believe that this would be an excellent moment to invest if you have extra money (as opposed to a sell-off). For every seller, there must be a buyer.
Private Capital is Here for You
You wouldn’t be human if you didn’t feel some trepidation in the direction of a slump from time to time. Regarding your investments, you must stay the course. Please read our ‘Best tips for staying cool’, which are located here. Our blog about Covid-19 might be of interest to you as well.
During down periods of the market, try to ignore your investments. If you would like to speak with a member of the team about changes to your circumstances, your financial plans, or your investment portfolio, please pick up the phone, send us a WhatsApp message, or send us an email.
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