Things Could Be Worse

Yesterday’s drop in the stock market erased all of 2018’s gains.  Volatility has returned and is reminding some investors of the pain they felt in 2016.  After all, 2017 was one of the easiest years in the market to make money since the market essentially melted up every day of the year.  Everyone looked like a superhero last year.  Everyone.

But things are different now.  Suddenly, it requires skill again to navigate these choppy waters.  As of yesterday’s close, the Vanguard Target Retirement 2025 Fund was down 3.5% this year.  Many pre-retirees have accounts that are negative this year.  Suddenly, accounts can go down again.  They don’t go up every day of every quarter of every year.  They go up and down.

The thing is, none of this is new.  The markets have always worked like this.  However, many investors have a short-term memory when it comes to their accounts.  They selectively remember how easy 2017 was…but conveniently forget how painful 2008 was.

Last year, a portfolio consisting of highly concentrated stock positions worked exceptionally well.  This year, diversification is suddenly “cool” again.  Fluke strategies worked well in 2017.  Those same fluke strategies are imploding this year.

If you think things are bad because your accounts aren’t up this year for the first time in a long time, you need to watch this apology video from James Cordier to his clients.  His options strategy took his client accounts to zero over the course of a month.  This was one of those fluke strategies that worked really well…until it didn’t.

The takeaway?  Over the long run, a prudent and disciplined strategy will hold up.  Fluke strategies come and go.  Stay prudent.  Stay disciplined.

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