Markets around the world officially entered bear market territory last week. We understand that market declines are stressful, regardless of how many times you’ve been through this. But we want to remind everyone that bear market risks were factored into your financial plan and specifically calculated for your cash flow projections in retirement.
We believe that an updated, comprehensive financial plan is the best tool for managing the stress of market declines. Unfortunately, we typically get more noise and less useful information as markets reach new highs or lows. That’s particularly true of the “advice” from neighbors, friends, and media experts that may amplify your stress. Remember – all that noise is based on emotions, rather than the facts of your long-term plan.
Every client of New Dimensions has a written financial plan; that has been our firm policy since we opened our doors in 2010. 75% of those plans have been updated within the last 12 months, and not one has had to change their projected retirement spending because of stock market performance. Financial planning works; market timing does not.
According to the chart from Dimensional Funds below, this is the 10th bear market in my lifetime and the 6th during my 24-year career.
Bear markets are not surprising or unusual; they occur about once every four years on average. You can see from the chart why we continue to believe in stocks. The recovery from a bear market is often quick, and the average length of bull markets is 5 times longer (55 months) than bear markets (10 months).
As we confront this current bear market, here are a few points we continue to believe relative to your long-term financial plan:
- You cannot control inflation.
- You cannot control global stock markets.
- Most investors need stocks in their portfolio over the long run to reach their retirement goals.
- Timing when you get in and out of the stock market is rarely a successful long-term strategy.
- The stock market indexes cannot tell you how you are doing financially. Only a financial plan can do that.
Tiffany and I do not recommend making any changes to your investment portfolio based on market conditions. We are rebalancing portfolios as needed and continue to reference your personal financial plan and cash flow needs (not markets) when it comes to decisions regarding your financial situation.
We are here to make sure your personal financial plan provides you peace of mind through market ups and downs. Please give us a call if you would like to talk about your plan.