12 May 2022 The One with the Down Market

I want to state, here at the outset and for the record, that the TV show Friends is the most overrated show of all time. But I am borrowing from that sorry show to craft the title of this blog, as each episode is titled with the syntax of “The One with…” and then an article and a noun, sometimes modified by an adjective.

Of all the genres of internet writing, “The One with the Down Market” is probably the least fun to write in, not so much because of the writing itself (there is so much content to pull from!), but because of course we are not professional bloggers. We don’t blog for a living; we give meaningful advice to real people we know well. So, while in some ways it could be fun to write an esoteric piece on “how to properly behave when the stock market is down 18% YTD,” this is no fun at all.

In the world of investment management, the style of investing that Beacon employs is broadly referred to as “passive.” Everything else is broadly referred to as “active.” We’ve sort of crossed the Rubicon on that nomenclature at this point, and there’s no real hope of getting a more nuanced set of terms. But today I just want to comment relatively briefly on the inadequacy of the word “passive,” especially in moments of market turmoil, when everything within us is screaming “Do something!”

There is no such thing as being a “passive” investor in the sense that English word is typically defined. Every investor must make a set of decisions, and each decision is necessarily active. So the difference between investors of the “active” persuasion and the “passive” persuasion is not that the first group of people is actually doing something in the midst of this adversity while the other sits idly on their hands doing nothing, but rather that each group has chosen to make a different set of decisions, for different reasons, and typically with different outcomes.

Here are just a few examples of how Beacon’s “passive” approach is not passive at all:

• We are actively betting on the US economy (and international economies) for the long-term and are actively not trying to micromanage either in the meantime (by picking sectors or companies or timing our participation in the market return). 
• We are actively choosing to forego the costs (both direct and indirect) associated with frequent trading and market timing
• We are actively choosing to focus the limited resources of time and energy on things we can control. What does this volatility mean? Do we need to change our saving (if not retired) or spending (if retired)? 
• We are actively engaged in addressing all of the parts of our financial lives, not simply the investments. Just because the market is down doesn’t mean other financial issues no longer need real attention.

It’s true, this type of active is less frantic, and there are times where it seems to lack the sense of urgency projected by the headlines we see. But we shouldn’t confuse laser-focused calm with passivity. Here’s maybe a helpful way to think about it: The stock market throws temper-tantrums in the same way that young children do. Tantrums are the worst, but young children haven’t learned any other way to deal with their hard emotions, and suppressing them is just going to lead to a worse blow-up later on. As investors, we have a choice like parents dealing with a tantrum-throwing child. The natural response is to either match their anger and volume or simply tune out altogether. But maybe you’ve seen parents who do neither, who instead exude a calm strength that takes the tantrum in stride and who works with their kid to learn and grow and find more productive ways to express themselves.

As with parenting, so with investing. We can either check out or attempt to match the frantic energy of the markets, but neither will help us meet our most important goals. Of course, this is easy to talk about, and difficult to do. But without long-term perspective? Pretty much impossible.

So I can’t and won’t sugarcoat it: The market stinks right now. It would be more enjoyable if it were not so, but there’s no way around it. And as there is no such thing as long-term growth without short-term pain; the price of admission must be paid. But we are here to help our clients pay that price with a laser-focused calm, continually seeking productive ways to be active.

The content above is for informational and educational purposes only. The links and graphs are being provided as a convenience; they do not constitute an endorsement or an approval by Beacon Wealthcare, nor does Beacon guarantee the accuracy of the information.