We have seen a week where the investment markets have been down over 20% followed by a single day recovery where the market jumped up 11%. Let me be blunt: This kind of volatility will continue for some time. As I’ve talked to many of my clients over the past few weeks, the feelings they have shared with me range from complete desperation to euphoria. Unfortunately, this whirlwind of emotions has started to impact other aspects of their lives. Please, do not let this happen to you.
I believe it is time for us to get back to basics, and I want to have a very special conversation with you. Hour-by-hour, we are bombarded with a whirlwind of conflicting information. I am concerned that the media hype has you focusing on the sensational and missing the important. The press continues to spin information on the financial world that would have you worry, struggle and panic about the financial markets and the American economy. In their view, the market is on a path of destruction that is beyond the capacity of nature or man to save, one that surely tolls the end of our financial system as we know it. Why would intelligent human beings torture you this way? Because the emotional hype makes news and news makes money. All sense and sensibility scatters when your chief financial advisors are the news reporters who capitalize on your fears. You need someone you can trust to help you sort through the news and keep you focused on what is truly important during times like these. I would be remiss as your tax and financial professional if I did not offer you the value of my personal and professional experience and perspective during times like these.
I want to assure you that nothing that is occurring today is unprecedented – though it may be happening on a larger scale – and that nothing about it is unnatural. What is happening today is the system’s way of cleaning out the excesses. And it will lead to a healthy renewal of the global financial system in ways that today’s doomsayers cannot even imagine. We have seen it happen before, and we have seen it bounce back stronger than ever.
As you listen to the daily news reports, here are a few points I want you to keep firmly in your mind:
1. Not everyone interviewed on the news is an expert.
2. The major problem that we’re experiencing today is NOT a lack of liquidity. Based on recent Federal Reserve data, American households have almost $12 trillion in cash. This is enough to pay off every home mortgage in America.
3. What we have before us is a crisis of confidence.
4. We’ve been here before and come back stronger.
In the midst of uncertainty, it’s always valuable to reflect on what is really important. During times like these, we have to get back to basics and dig deep into the important values we hold dear.
It’s really all about the people in our lives. I remember in October 1987, after the largest one-day drop in the market, I watched Louis Rukeyser on Wall Street Week. He said, “It’s just your money, not your life. Everyone who loved you a week ago still loves you tonight – and that’s a heck of a lot more important than the numbers on a brokerage statement. The birds still sing, the crocuses will bloom, babies will gurgle and puppies will curl up in your lap and drift happily to sleep, even when the stock market goes temporarily insane. And now that that’s all full in perspective, let me say, ‘Ouch. And Eek. And Medic!'”
As I reflect on the current market, along with his sage perspective, I know he got it right. It’s really about values – American values. As a people, we are courageous, independent, resourceful and we have seen (and survived) dramatic times before. As individuals, you have all been prudent investors and savers. This is a prime opportunity to refocus on the basics that got you here and teach them to the next generation:
1. Spending less than we earn
2. Saving for a Rainy Day
3. Making good investment decisions today
4. Using asset allocation to balance and diversify our investments
We all know that there are no guarantees in life. Even with the uncertainty in this current market, many things in our worlds remain stable, loving and alive. With all the crises I’ve survived in my lifetime, I’ve learned to wake up every morning, and be thankful for the new day: I arise each day, counting my blessings. That feeling of gratitude has given me the strength and encouragement to achieve great things in face of difficulty. You can do the same.
Remember, hindsight is always 20/20. When we look back at this time in six months or a year – or 10 years, we want to make sure that we can say that:
1. We kept our heads and made smart decisions in the face of conflicting information.
2. We took care of what mattered most, cultivating love and trust with our friends and family.
3. We stayed focused on the tried-and-true principles that got us to here and that sustain us through times like these.
4. We used this opportunity to teach great financial lessons to our children and grandchildren.
With that said, I want to reiterate that we are truly living through historic times. I believe that America’s best days are always ahead of her. And we will wait patiently for more rational markets. Just because the world goes crazy in this current mania, doesn’t mean we have to participate in it.
So, in times like these, we need to access the common sense and courage that has seen Americans through many, many other times of uncertainty and dramatic change. This is the time to dig deep and reassess what is truly important to us and stay focused on what we know works and do not let this temporary event infect what’s most important to you.