Don’t Just do Something, Stand There.

Late Vanguard founder Jack Bogle had a saying: “Don’t just do something, stand there!” In other words, the best strategy is to determine a long-term plan and stick with it, and ignore the urge to “do something.”

As markets retreat investors find it difficult to do nothing.  For some investors tapping out by raising cash is the simplest “do something” solution.  The problem with is choice is that by the time investors reach this pain threshold, markets are already down. And when it looks clear to invest again, markets have already recovered. The investor is left with a realize loss and lost opportunities for recovery.

The twin slide of the stock and bond markets began their decent from its highest point late December 2021 as pandemic stimulus began to wane and inflation began to rise. The S&P 500 has given up between 20-25% since that time depending on which way the CPI blows.  More impressive and disturbing for investors is that the bond market as measured by the Barclays Aggregate Bond Index is down more than 15% for the same period.

For the first time in a generation, bonds are experiencing equity like volatility. Monetary policy directed at choking out a piping hot economy has assured that any bond bought yesterday is worth less today.  The Fed, who’s responsibilities include the pursuit of full employment and stable prices is now raising prices (rates) to create higher unemployment.  As if investing isn’t hard enough.

The central bank solution to taming inflation is the problem and there is no end date or a deflation meter to know when the coast is clear.  With no predictable outcome as to how bad the economy needs to take it on the chin before things get better, markets will overly correct until they see a uniformed retreat of the cost of living.

If the Fed’s persistent rate hike solution is the cause, then shouldn’t we find a cash bunker and wait this thing out?  How practical is it to just stand there with ghost of Jack Bogle and do nothing? Sure, the father of passive investing benefited from inactive stay put investors but history shows us that the more investors pivot, the more that can go wrong.

There are no ribbons and balloons attached to market upticks like this past Thursday and possibly today.  Markets retreat and recover in surges.  Miss a few of the recovery surges over any period of time and the results can be striking and life changing.  Unfortunately, lost opportunity is a much harder measure so our brains revert to the unrealized losses we can recognize on our most recent statement.

The markets will not wait for a Powell podium moment to recover.  Markets won’t need to hear from the chairman that tightening and rates hikes are over.  After some phony feel good moments, the markets will eventually determine that this Fed pill we have been forced to swallow is finally working.  The easiest way to be there on time is to already be invested.

Editor’s Note:  Staying invested requires conviction.  A thoughtful financial plan is your first line of defense to provide guidance and assurance.  Speak to your ACM wealth advisor to make sure that you are prepared to weather market volatility wisely.  Having the proper cash reserves, the right risk allocation, and an understanding of what markets need to do for you over time are some of the key results of ongoing wealth management.

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