As 2020 gasps toward the finish line, it’s likely we all feel a little beat up by the chaos and uncertainty characterizing this extraordinary year. To sustain our edge, we’ve found it helps to focus on the silver linings. What successful milestones have you achieved this year despite the challenges – or maybe because of them? 

It can help to channel that same positive energy into remaining a steadfast investor, ready to seize the opportunities that lie ahead. Sometimes, the keys to investment success can seem counterintuitive at first. So today, let’s take a closer look at a trio of weird, but wonderful “upside-down” investment insights for interesting times. 

Investment Insight #1: Market volatility is the norm, not the exception. 

How often have you thought something like this: “The markets seem so crazy right now. Maybe I should back away, or at least wait until things settle down before I make my next move.” 

The problem is, the markets rarely “settle down.” And when they do, we only realize it in hindsight. There are just too many daily seeds of doubt, forever being sown by late-breaking news. We never know which ones might germinate – until they do, or don’t.

We suggest putting market volatility in proper context. 

“Being surprised at equities’ ups and downs is like visiting Chicago in January and being shocked by 8 inches of snowfall.” — William Bernstein 

In other words, it’s normal for markets to swing seasonally. It’s just part of the weather. For example, in Dimensional Fund Advisors’ commentary, “Recent Market Volatility,” we see U.S. stock markets ultimately delivered positive annual returns in 34 of the 41 years from 1979–through February 2020. But during the same period, investors had to tolerate average intra-year declines of 14%. 

Investment Insight #2: Market volatility is your frenemy. 

What if markets weren’t volatile? What if all the days, in every market, were like November 12, 2019, when the Dow closed at the same 27,691.49 price as the day before? 

If prices never changed, traders would become unwilling to trade; they’d have no incentive to do so. In this extreme, markets would no longer be able to serve as a place where buyers and sellers came together and agreed to price changes. Soon enough, markets would cease to exist.

What if there were just far less market volatility? You would probably soon discover how much you missed those same, downward price swings you ordinarily loathe. That’s because, long-standing evidence has informed us: By giving up extra volatility, you also must give up the extra returns you can expect to earn by tolerating the volatility risk to begin with.

“If you’re living in fear of the next downturn, consider shifting your thinking instead of your investments. Focus on controlling what you can control, such as how much you save, or finding the right stock/bond mix.” — David Booth 

Investment Insight #3: You can win for losing. 

Wouldn’t it be great to hold only top selections in your investment portfolio, with no disappointments to detract from your success?

Of course it would. It would also be nice to hold a $100 million winning lottery ticket. But just as the lottery is no place to invest your life’s savings, neither is speculating on the razor-thin odds that you can consistently handpick which stars are next in line to shine.

Instead, we suggest building a broadly diversified portfolio covering a range of asset classes … and sticking with it over time.

By always being already invested wherever the next big run is about to occur, you’re best positioned to earn market returns according to your risk tolerance. At the same time, spreading yourself across multiple asset classes also means you’ll always be invested somewhere that isn’t doing quite as well. This means you’re unlikely to ever “beat the market” in a big, splashy way.

Here’s a helpful way to think about committing to a mixed-bag (diversified) portfolio:

On a scale of 1-10, with 10 being abject misery, I’m willing to bet your unhappiness with a diversified portfolio comes in at about a 5, maybe a 6. But your unhappiness if you guess wrong on your one and only investment for the year? That goes to 11. — Carl Richards

Obvious in Hindsight?

We hope the insights we’ve shared now seem a little more obvious. We also hope you’ll be in touch if we can help you incorporate or sustain these three upside-down ideas within your own portfolio management. Because …   

“‘[O]bvious’ is often a long way from ‘really believed and internalized’ and in the gap between those two fortunes are made and lost.” — Cliff Asness

Let the Evidence Set You Free

There’s another benefit to shifting your mindset to one that entrusts the markets to do what they do best. It lets us build efficient portfolios for capturing what the market has to deliver by adhering to a less subjective, more systematic investment approach.

We call this evidence-based investing. But it’s more than the investing that interests us. It’s also how the approach frees us to spend more time doing what brings us joy with those we love.

Let us know if you want to know more about evidence-based investing. Or, if you are struggling to embrace its life-affirming tenets by yourself, join us in a conversation. We can review your financial plan with an eye toward removing any self-imposed hurdles and accelerating you toward your greatest financial goals.

Don’t manage your financial future all on your own. Sit down with our team today for a Cogent Conversation. We’ll listen to what success looks like for you, build a plan tailored to you, incorporating these investment insights and help you execute that plan every step of the way. 


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 [WC1]Note: This link points to an updated version of this older post, published in March 2020. I’ve updated the data accordingly.