Should You Be Worried about a Market Decline?

May 21, 2014

This week, we received an email from a client who was concerned about whether a market collapse was imminent.  Her concern arose from commentary and articles she had read from “market experts” who were predicting large declines in the coming year, including suspect commentary by the famous Warren Buffett (although Buffett has always stated he can’t and doesn’t predict what the market will do).

If you pay any attention at all to the financial media (something we don’t recommend you spend much time on) you have no doubt noticed a great deal of discussion about whether the financial markets are overvalued, whether bonds are ripe for decline and if a correction of some sort is just around the corner.  We see these commentaries too (after all, this our job to keep an eye on things) but we keep in mind that this sort of discourse is part and parcel for Wall Street and the financial media, every day-week-month-year for as long as there has been financial news.

It would be nice if we could somehow see into the future and anticipate what the market might or might not do.  History has clearly shown two important facts for everyone to keep in mind; 1) Forecasters are usually wrong and when they’re right, it’s luck, not forecasting skill, and 2) There will always be someone predicting bad news is imminent and bad news often sells well to a worried public. There’s always something to worry about!  Too much of such worry could derail you from your financial plan and meeting your objectives.

It is certainly possible that the market could swoon over the next 12 months, however we have no way of predicting when or how or how much, or even when would be a good time to “get back in” (the other question to ask in these discussions).  And while we can’t predict such things, neither can anyone else in a reliable, credible way.  As a sign in our conference room clear states (and to which we adhere); “We cannot direct the wind, (but) we can adjust the sails.”   This is a good reminder to all of us to not pay too much attention to market action and forecasts, but to keep our eyes on the horizon and our focus on our goals and what we can control.  Proper asset allocation aligned with your goals and risk tolerance and a focus on the long-term are good antidotes to market anxiety.