I don’t know about you, but the last few months have been some of the wildest and most newsworthy I can remember. From a global pandemic and ongoing social unrest on one end to an incredibly inspiring SpaceX launch and emerging hope for a better world on the other, the roller-coaster of emotions has been all over the map. It’s unpredictable, intense, and at times utterly exhausting.
And the markets have clearly mirrored that crazy ride. It seems like only yesterday that I was writing an article cataloging one of the single worst months to invest on record, but the market has since roared back far faster than even the most optimistic investors expected. That encouraging development seems to have changed investing mindsets a bit, spurring a curious reader to pose an interesting forward-looking question:
What are the portfolios that tend to do better after a crisis?
While I don’t have a functioning crystal ball, I do have a ton of historical data at my fingertips. So let’s dig in and see what we can learn about portfolio recoveries.
In July of this year NASA is planning to launch the next mission in their ongoing series of journeys to Mars. Named Perseverance, the robotic explorer is built on the successful design of the Curiosity rover that has been wandering the Red Planet since 2012. A machine capable of long-term exploration of another planet is a true engineering marvel, but controlling it remotely is not even the hard part. After decades of practice, even the requirements of launching devices out of the pull of Earth’s gravity are pretty well-known. But do you know what is still a real challenge even for the best rocket scientists?
Sticking the landing.
As the entire world locks down in reaction to the ongoing coronavirus pandemic, our number one concern as a group is mutual solidarity in saving lives. But the ultimate impact of the tiny COVID-19 virus extends so far beyond the immediate health toll. The disruption to our global economy required to prevent its spread is having profound, deep-scarring effects on the everyday lives we take for granted. Entire industries are closing their doors, countless people are losing their jobs, and any short-term treatment for the disease may simply be a prelude to a much longer financial road to recovery.
So as we shelter in place taking care of our families and waiting for the worst to pass, it’s natural to count not only our stock of food in the pantry but also our collection of stocks in the market. No matter how you invest, I wager it isn’t pretty. It’s not just you. There’s no hiding from the turmoil, and we’re all feeling the pain.
The resulting anxiety prompts normally self-confident investors to suddenly get very curious about how others are doing in the same situation. I get it. So let’s talk real numbers and put the current financial crisis in perspective for different types of portfolios.
Unless you’ve been living under a financial rock, you’ve probably heard about the recent stock market turmoil. You know what I’m talking about. That big unexpected thing that nobody saw coming spooked the market into a freefall. The news is full of gloom and doom. The usual safe-haven assets aren’t behaving as you might expect. Normally level-headed people are freaking about about their investments. And you’re sitting there wondering if the financial world really is finally coming to an end.
Even without naming the crisis, I imagine this situation sounds familiar. In fact, despite the false sense of invincibility that blissfully ignorant investors can easily build up during periods of market growth, this kind of thing happens all the time. Portfolio Charts is dedicated to studying that history beyond the pretty long-term averages. From the meager short-term drawdowns to the wildest pandemonium when stocks are truly off their meds, the data is all here in its raw visual glory.
But contrary to the media personalities that live for selling juicy drama, pious lectures, and petty schadenfreude, my goal isn’t to peddle in fear. I’ve been there and understand your concerns, and I simply want to share the knowledge and philosophy that helped me overcome my own investing insecurities.
So on this day where you may be questioning your own decisions and anxious for what the future holds, allow me to offer a little wisdom learned the hard way. Think of this short list of articles as my bear market survival kit, as they are a small window into the mindset and approach that helped me gain the confidence I needed to make money, sleep well, and live a happy life in any market condition.
Growth is a wonderful thing. We all start somewhere and do the best we can, and over the years people learn, mature, and evolve into something even better. That applies to lots of things like relationships, careers, asset allocations, and even hobbies like this little Portfolio Charts endeavor. So in honor of the 4-year anniversary of the site I’ve decided to launch a new logo and tagline that I think celebrates its growth as a resource and captures its spirit and mission looking forward.
Find a portfolio to love
You see, the pages here may contain a lot of data and visualizations but the design intent goes so much deeper than that. Strip away the methods and focus on the goal, and there’s really one singular mission I have in mind — I want you to be a happy investor! It’s such a simple concept but it’s amazing how difficult it is for so many people to grasp, so let’s forget everything we think we know about investing and start from scratch.
What does it mean to love your portfolio?
Three brothers inherited equal parcels of land from their father. The land was vast and diverse, and the weather was unpredictable. One season bountiful rain would shower one end of the fields and the other would be in drought, while the next season the conditions would sometimes switch entirely. Each brother was eternally grateful for the inheritance, and they sought to make the most of their good fortune.
Whether you prefer jump scares, bloody zombies, or simply a cute dog in a ghost costume, Halloween is all about kicking back and having a little fun with fear. But while watching a good horror flick with a bag of candy may indeed be a good time, the adrenaline may not necessarily wear off so quickly if you’ve been watching the increasing volatility of the markets lately.
Wanna see something really scary?
The new year is here, the Christmas ornaments are packed away, and we can finally get down to the business of making 2018 our best year yet. This is my own busiest time of the year, as updating every asset, calculator, and portfolio on the site with new annual data is no easy task. But while I keep calculating behind the scenes, I believe this is a good time to think big picture while things like New Year’s resolutions are top of mind.
What can you personally resolve to do in 2018 to become a happier and more productive investor?
Not sure how to answer that? Then let me offer a few simple suggestions.
Perhaps the approaching Thanksgiving holiday has made me more sensitive to this type of thing, but in the process of counting my blessings I’ve started to become more cognizant of just how negative investing discussions can quickly become. Turn on the TV or browse the internet, and it seems there is a never ending stream of stories feeding your sense of financial inferiority. The better ones tend to focus on how to avoid stress, fear, and greed which is certainly a good message, although running from negative emotions still is not particularly motivational.
The more I think about it, the more I realize there are surprisingly few people out there describing a vision of a healthy investing mindset to aspire to. That’s a shame, as investing is about so much more than flooring it on a mountain pass while struggling to keep the car on the road. So let’s take a moment to pull over, check out the scenery, and think about the real purpose of our journey.
After years of learning the hard way, I’ve come to appreciate that successful investing requires not only a smart plan but also a positive outlook. In my experience, the transition involved a shift in thinking from one of scarcity where more is always better to one of abundance where the concept of “enough” unlocks entire new areas of personal fulfillment. And the key to that abundance mindset is a simple principle that investors too often take for granted — Thankfulness.
Are you a thankful investor?
As we all recover from a happy Halloween full of way too much candy and possibly a bit too much to drink, I imagine that many of you may not feel so great. Indulgence has its downsides, and once the excitement of the sugar high wears off sometimes all you’re left with is an upset stomach. Whether that discomfort is really bad but you recover quickly or is relatively minor but persists for a long time doesn’t really matter, as both situations are equally undesirable.
There’s a similar problem with investing, and scores of articles have been written on risk tolerance, sleeping well at night, and all sorts of downside mitigation strategies to help reduce that pain in your stomach that you just can’t shake when markets aren’t going your way and your life savings are struggling to stay afloat. I’ve written before about how smart asset allocation can help solve the problem, and I’ve just added a really cool metric to take that analysis one step further. It’s appropriately called the Ulcer Index, and understanding how it works can help you find just the right portfolio for your personal pain tolerance.