You might be wondering why this blog's subject line reads Maintaining Perspective + Yacht Rock and how in the world Yacht Rock could possibly relate to investments or finance in any way whatsoever? Well, if I must tell you, it doesn't (sorry for the surprise); however, having a little Steely Dan, Doobie Brothers, George Benson, and Christopher Cross on in the background does create quite the chill vibe as I reflect on this weeks market activity (smile) while at the same time hammering out this blog. So, now down to the task at hand. Please indulge me a moment to opine on what I believe to be very important at this time - maintaining PERSPECTIVE.
Some may have been feeling that the stock market seems to have recovered from the lows of March and April but they are not participating and may be wondering if it's potentially too late to "get into the game"? On the other hand some may also be wondering, in light of the recent recovery, current volatility, and the upcoming elections, if now might be the right time to consider "taking some change off the table" by reallocating to a more conservative allocation? Rest assured, these questions are not uncommon; especially when we give consideration to what may have just happened in the market or what might happen in the near future (short run). What is important to remember is when we make our decisions based on what has just happened in the market; we will tend to trail the market - and it's the trailers that lose over the long-run!
Investors need to understand that it's not about how the stock market performs in the short run. It's about whether you are pursuing your financial goals based on your time horizon and tolerance for risk. How the stock market moves from week-to-week, or month-to-month, should be of some interest but perhaps not an overriding concern.
You may have heard me use the analogy of how constructing a well built literal house can be likened to the construction of a well built "financial house". If your "house" (literal or financial) is constructed on a stable and solid foundation it can weather just about any storm. Sure, a windstorm may cause some damage to your roof and you might even lose some of the roof's decking and shingles (which is certainly inconvenient) but when your house has a strong foundation it will stand. You throw up a blue tarp and wait your turn for the contractors. In time, your roof is repaired. In a similar sense, when an "economic windstorm" blows through, you will probably see some temporary setbacks - damage to your "financial roof", if you will. However, when your financial "foundation" is strong, in time, you may recover; confident your "house" can provide comfort and security throughout retirement.
Do you have "foundational investments" (i.e. investments free from stock market risk) as a portion of your portfolio? In other words, is your "financial house" build on a solid "foundation"? If so, then you needn't worry, you may be confident your "house" can weather the next financial "windstorm" that blows through! If you're not sure, it's time to talk.