After hundreds of safe flights under my belt it may be hard to believe but I am afraid to fly. I know the statistical odds as to the safety of flying, I have spoken with both current and retired pilots about my concerns of which they tried to address, I have tried meditation, read books and even tried melatonin for a long flight to Europe. Nothing works. I am not a prescription or alcohol to alleviate your fears kind of guy. I just get on the plane, say my prayers and spend the next few hours gripping tight and hoping the pilots up front get me to my destination safely. There are absolutely no explanations for my fear other than I am a control freak and while I am at the back of the plane and someone else in charge, I am not.
Why am I sharing this personal frailty with you? The reason is that many of you are feeling this way right now with the capital markets. All of the statistics over the last 200 years of the stock market shows us that corrections are a normal part of investing. Interest rates move in tandem with the economic cycle both up and down. The inflation pendulum swings too far in each direction as liquidity issues drive prices higher. World wars have been too many for anyone’s liking. Politicians on both sides of the aisle have and will continue to make stupid decisions affecting our lives. Businesses get greedy, workers get upset and productivity rises and falls with the engaged or disengaged spirit of the time. Just as I have flown hundreds of flights over my adult life, I have been through 37 years of economic cycles as a professional in the financial services business. History is not only repeating itself; it is screaming at us to pay attention not to panic and think long term.
Fidelity investments created a great piece reminding us that in order to get the long-term rewards of the stock market, you need to think long-term. The equity investor must be willing to withstand an average of a 5% correction 3 times a year, 10% correction once a year, 15% correction every 3 years and greater than a 20% correction every 6 years. With that all said and done the stock market has averaged slightly over 8% a year since 1926 with the market positive 73.7% of the time year over year. The bond market has not been as predictable yet shows over time the reinvestment of income at higher rates will decrease volatility and improve cash flow at a time when bond prices are lower and yields higher.
Today we feel like the pilots of your “portfolio” plane going through extreme turbulence. We are well aware of the statistics of long-term success and confident in our skill to navigate through rough weather of market fluctuations over time. We have a complete understanding and appreciation for your discomfort while we go through these volatile times yet we are confident that when calmer weather approaches our destination will be closer at hand. Yet like me flying, you are still in the back gripping the seat in fear. I feel your pain. Smart enough to know better, yet still scared.
How you choose to react under duress in the short term will directly affect your success in the long term. Our long-term advice remains constant in a world where short-term thinking often delivers poor results. An open and honest discussion about your fear and concerns is healthy. We are available to have these discussions 24/7 to help quiet the noise of the day. I will get on another plane when the need arises and face my fear knowing that if fear controls me, I will make a bad decision. Fear is a choice often eliminated through education. Just as there are no monsters under the bed, flying is the safest form of transportation and long term the capital markets will be just fine.
The High Net Worth Advisory Group LLC
The High Net Worth Advisory Group, LLC is registered as an investment adviser and only conducts business in states where it is properly registered or is excluded from registration requirements. Registration is not an endorsement of the firm by securities regulators and does not mean the adviser has achieved a specific level of skill or ability. This is not a legal or financial recommendation and should be used for informational purposes only.