The market decline in the middle of 2015 and early 2016 had much of the same feel as the tech boom and bust of the late 1990s/early 2000s and the 2008–2009 global financial crisis. Times like these are never easy for investors, who must face concerns that “things just might be different this time.” In the midst of a market weakening, it is natural to sense that the volatility is worse and longer lasting than anything before.
No single word of advice or story can minimize the fear and anxiety you may feel about your investment portfolio and retirement security. Now, as always, it is important to stick with your plan and focus on the fundamentals.
A Sports Analogy
To help navigate the choppy markets, consider how world-class athletes approach success. The greatest athletes, from Olympians to all-star professionals, focus on process rather than outcome when competing at the highest level.
Imagine yourself playing in a championship basketball game. Your team is trailing by one point. You are fouled just as the game clock goes to zero. You have two free throws. Make both, and you win. Miss them, and you lose.
What do you do to contain the pressure and focus on the task? The great athletes look to process. While individual approaches may vary, each reflects a personal routine a player has performed thousands of times in practice.
For instance, you start your routine as you move toward the free throw line; you take a deep breath and imagine the ball going through the hoop; step to the line and find the exact spot (usually a nail right behind the painted line) where your right foot will anchor; look at the back (or front) of the rim and notice the paint—or anything else to help you concentrate and calm your mind; and you take the ball from the referee and continue your routine. You dribble twice and flip the ball in the air, take a couple of knee bends, find the grooves on the ball, and spread your fingers across it. You feel the texture of the ball, the rough orange leather and the smooth black rubber on the grooves, and finally time the motion so that your body, the release of the ball, and the follow-through of your hand are all in perfect sync as the ball elevates and descends to the basket.
Effective athletes do not hope for an outcome or get nervous or scared as the moment of action approaches. They immediately fall back on the tried and tested routine performed countless times in a more serene environment, also known as “practice!” Following the routine dulls the noise of the crowd and brings clarity of mind. The Golden State Warriors’ Stephen Curry holds the NBA record for flashy 3-point baskets, but it’s his nearly perfect free-throw percentage and laser-like focus on fundamentals that have pushed his team to clutch victories and earned him the respect of his peers.
Ignore the Chaos, Tune Out the Noise
The same lessons apply to the seasoned investor. A chaotic market is akin to what the visiting team experiences in an arena, in which opposing fans and players are doing everything possible to distract you. You stay focused on a routine that has become second nature through coaching and methodical drills.
The components of the seasoned investor’s routine are similar: the investment policy statement, the regular review of family goals and liquidity needs, and the annual review. These and other actions are all part of the process developed to summon that muscle memory needed in stressful times. Just as the great athlete navigates through moments of pressure and excitement, a “financial practice” routine enables individuals to glide through a rollercoaster market like we have seen recently.
Regardless of the market or time period, clients who maintain discipline have the highest chance of achieving what is important to them.