What Is in Your Control?

There has been nowhere to hide this year. Year-to-date (9/30/2022), the S&P 500 is down 25% and the bond aggregate is down a whopping 15%. It’s the worst-performing period for a balanced portfolio since 1931!

Unfortunately, market returns are entirely out of our control and yet it’s what most of us spend time reading, watching, and listening about. You cannot control the multi-trillion-dollar capital markets. It doesn’t care when you invested. It doesn’t care how much you invested. And, it doesn’t care what you planned to spend the investments on. That’s the bad news.

The good news is that there is plenty in our control that can make a meaningful difference during nasty market environments.

Things you can control

Your allocation – You can ensure you are properly diversified to take advantage of volatile markets. This does not mean you won’t be down (see above). But it can increase the probability that you can weather the storm when it hits. There are parts of the stock market that are down 80-90% and some bonds that are down more than 40%. Hopefully, you didn’t have too much of your portfolio allocated there.

Taxes – You can do proactive tax planning, such as tax loss harvesting or Roth conversions while the market is down.

Spending and savings – During downturns in the stock market, you can control spending to lower withdrawals while things are down – or if in the accumulation phase, increase savings. For retirees with a big COLA increase coming to Social Security, this is a good opportunity to cut portfolio withdrawals.

Behavior – Lastly, you can control your own decisions and stick to a long-term investment plan that is hopefully backed by a sound financial plan. I’d also add, you can control what media you consume that might jeopardize your behavior.

If you can master that last one, history suggests you will likely have tremendous success in the capital markets.

Happy Planning,

Alex

This blog post is not advice. Please read disclaimers.