This Time It’s Different

I graduated from college in 1995 with a degree in economics and finance. At that time, only about 14% of Americans used the web (and only 20% of them went online every day), Amazon had just opened for business and the most popular web destinations were AOL, GeoCities, Netscape, WebCrawler, and Yahoo*. I didn’t know it at the time, but my first day on the job as a financial advisor almost perfectly coincided with the beginning of the Dot-com bubble. You know, that period of time when the World Wide Web was just coming online (pun intended) and you could make a mint by throwing money at any investment with a .com in its name. Over the course of the next few years, investments in individual technology stocks like Cisco and Dell Computer and mutual funds like the Putnam OTC Fund and the T Rowe Price Science and Technology Fund doubled in value in a matter of months rather than years. Of course, by the time the music stopped, almost everyone had become too heavily invested in large U.S. technology stocks and suffered large losses in their portfolios.

It was during that time that I gained my first experience talking with clients that were anxious about their money (and their future) as they watched their account balances decline. I wanted to make sure I was available as a steady voice of reason for them (as much as one could be at age 28!) so I studied the history of the stock market, paid close attention to my mentors at the time and learned to listen well, empathize and say things like….

“Stay the course.”

“Look at your account balance less often.”

“Turn off the financial media.”

“The market is a voting machine in the short run and a weighing machine in the long run.”

“Stock market corrections are normal and necessary. In fact, we experience one every 2 years on average.”

20+ years later, in the midst of another market correction, I believe the advice I offered back then still rings true. I even wrote about it recently here and here. At the same time, I want to acknowledge that, for many of us, the current pullback probably feels different than the ones we’ve experienced in the past. There are a few reasons why this may be the case…

Perhaps your portfolio balance is higher than it has ever been. Thanks to your diligent saving, prudent investments and the recent extended bull market, the value of your nest egg might be much larger than is was during the last market downturn. This could certainly impact how you feel right now. The dollar value of a 10% loss on a $150k portfolio is $15k. That number increases to $150k if your portfolio value is $1.5M.

Or maybe you are retired now. It can be more challenging to ride out a stock market correction when part of your paycheck depends on your portfolio. If you retired after 2018, this is your first experience with a real market pullback as a retiree (other than 2020 which only lasted for 33 days.)

Some of the apparent causes of this correction; the war in Ukraine, high inflation, and supply chain bottlenecks are scarry. The causes of every market disruption feel daunting (that’s part of why they cause volatility) but as we experience them in real time, it can make us feel as if the walls are caving in around us. That’s normal but always feels a bit unnerving.

Finally, this correction IS different. The combination of interest rates, stock prices, government spending, geopolitical events, and other variables is different this time than it was during the last market decline, and the one before that.

Even though this market correction may feel different, I still believe the advice I offered in 2001 is still the best course of action. That is assuming you’ve done the work ahead of time to build a diversified portfolio that aligns well with your financial plan and individual risk tolerance.

With that said, at Beacon, we understand that no one likes to lose money and that following even the best advice during times like this is often easier said than done. We also know that financial advice can come across as unsympathetic and impersonal if not offered from a place of empathy and understanding. That’s one of the reasons we strive to build long-term relationships built on trust and communication with our clients. It’s also why we’re always available to talk if you’d like to discuss your portfolio, your financial plan or anything else that’s on your mind. Let us know if you’d like to chat.

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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.

Geoff Hall, CFP®
[email protected]

My wife, Crystal, and I have been married for 11 years and have two kids, Cooper (10) and Rhodes (8.) When I’m not spending time with them you might find me downtown serving at our church, pushing my limits during a mountain bike ride or having coffee with a friend in the Five Points area. I've been a financial advisor for 29 years and I'm thankful for the privilege of shepherding my family of clients through the ups and down of the markets, and of life for that matter.