Taking a Break

I never thought I would find myself looking forward to summer breaks as an adult. That is until I had my own kids and got to experience what my parents did. At this point, I think I’m even more excited than my kids, and the main reason is that I get to catch an extra 30 minutes of sleep every morning until August. Being perpetually tired for the last 11 years has made me appreciate the little things in life, like an extra 30 minutes of sleep. As I continue to navigate through the trials of parenthood, I have a greater appreciation of what my parents sacrificed for me to get to the place I am today.

Taking a break and getting some rest is good for all of us. Increasingly over these last several weeks, we have fielded many client questions asking us if it would be a good idea to take a break from investing in both stocks and bonds. In addition, many people have watched the performance of markets this year and are wondering if there is more downside risk in the coming months, especially as energy prices continue to march higher.

While we can’t predict what will happen in the near term, we can look back over the last 25 years to see how a strategy of sitting out during key time frames would have affected performance. This analysis is very similar to how missing the best market days affects long-term performance but is stretched out into the best week, month, three-month, and six-month periods.

The dates in which the best periods occurred immediately jump out from this graph. The worst month and three-month periods were during the initial phase of the pandemic, and the worst week and six months occurred during the Great Recession in 08-09. This makes sense intuitively as towards the end of an intense move lower, a powerful rally usually begins. Most people trying to avoid these types of portfolio drawdowns end up selling at the precise wrong time, usually near the lows, only to watch as prices recover over the proceeding months or years.

Our advice to those who may think that they can navigate these turbulent market times by sitting out for periods is to remember that for this strategy to work, you need to be right twice. Selling is the easy part, but the real challenge comes when you decide to go back into the market. Unfortunately, too many stories emerged from the 08-09 period, and more recently the pandemic of investors that took a break, only to do so and miss some of the best returns in the last 25 years.

Remember that financial plans are designed for times like this, and if your peace of mind has diminished, perhaps it’s time that you revisit your financial goals and risk tolerance to make sure that nothing has changed. If you find yourself in this situation, please reach out to us. We are here to help.

Nathan Smith is the Portfolio Manager with Rather & Kittrell.