At the end of March 2020, the S&P 500 was down nearly 20%. The world was scrambling. Many experts hypothesized where we’d be in the next year. Everyone had an opinion. But I don’t remember anyone that said the S&P 500 would be up 56% over the next 12 months. No one could have predicted that.
David Booth wrote an article months ago about the “new normal.” He talked about expected market downturns a couple of times in a decade. When we have corrections, bear markets, and recessions—it’s normal. We just don’t know when they’re coming. You can’t predict a crisis—but you can plan for it. So how do you do that? What is the next “new” normal? Listen to this episode of Best in Wealth to hear my thoughts!
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Outline of This Episode
- [1:17] The importance of a calendar
- [6:33] What is the next normal?
- [12:00] The US Small Cap Value Fund
- [16:19] Sticking to a long-term investment plan
- [17:57] Are you investing—or gambling?
- [20:27] What is the next new normal?
The US Small Cap Value Fund
Smaller companies tend to do better over time. The expected return is higher. The US Small Value was down 39.02% at the end of March 2020. What happens when you look at a small value asset class and see that it’s down that much? Most people make a change. People kept saying that “value was dead” and that you should get out. But that’s not what a family steward does. Instead, we did some strategic rebalancing.
Instead of fleeing, we invested more money into that asset class. Why? Because we believe in long-term expected returns. We want to stay invested and stay in our lane. Fast-forward to March 31st, 2021. The US Small Value is up 112.09%. The Russell 2000 Value—the benchmark for this dimensional fund—had a gain of 97.05% but still nowhere near Dimensional’s. The S&P 500 was only up 25.71% overall.
Sticking to a long-term investment plan
Sticking to a long-term investment plan isn’t easy. But discipline and patience are necessary for a family steward. We were all stressed last March. We all felt pressure to make changes for the sake of reacting. People wanted to get out of the market to reduce uncertainty. But getting out of an asset class increases uncertainty. It forces you to choose the best time to get back in. There are people right now that got out of the market and are still sitting on the sidelines. I know people who pulled out during the 2008 recession who are still out of the market.
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Are you investing—or gambling?
Many people who think they’re investing are actually gambling. It’s a simple distinction. If you’re trying to time short-term market movements, you’re gambling. Staying focused on a long-term strategy is hard work. It’s not doing nothing. Short periods like the 1st quarter of 2020 aren’t signals of future performance. It’s a reminder of how hard being a long-term investor can be.
If you’re investing in all of the asset classes you should be in, you don’t know when returns will show up. That’s why you stick to your plan. Every financial crisis is different but the best way to deal with them is always the same. You can control your response to the crisis. Talk about this stuff when times are good so you’re prepared when times are tough. The market will go up and down.
The new normal is expecting uncertainty and committing to a plan that addresses it. It’s rising above the temptation to make changes when things get tough. It’s understanding the difference between investing and gambling. It’s remembering how good it feels when things work out. Make thoughtful planning your new normal. Need help doing that? Schedule a call with me!
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Podcast Disclaimer:
The Best In Wealth Podcast is hosted by Scott Wellens. Scott Wellens is the principal at Fortress Planning Group. Fortress Planning Group is a registered investment advisory firm regulated by the Securities Act of Wisconsin in accordance and compliance with securities laws and regulations. Fortress Planning Group does not render or offer to render personalized investment or tax advice through the Best In Wealth Podcast. The information provided is for informational purposes only and does not constitute financial, tax, investment or legal advice.
