Updated: Feb 17
As planners, we are often asked during times of increased market volatility if clients should sell the stocks in their portfolios. Given how much time we spend trying to prepare our clients for these events, it can be confusing and even downright frustrating that the subject will be so frequently broached
The logical, evidence-based action to take in these circumstances is to leave your portfolio alone! Why is this so hard to remember or understand? As a planner, what we can sometimes forget is that your investment portfolio isn’t just an investment portfolio.
We aren’t dragons accumulating mounds of gold to hoard in our caves! (Author’s note: if you are, in fact, a dragon accumulating gold to hoard in your cave, I would recommend sharing that goal with your financial planner; they may have some thoughts on a more tax-efficient way to do so!).
We save and invest to accomplish the things in our future that we’ve hoped and dreamed of doing; sometimes for many years! These goals are often not fully identified or formulated all at once and are shaped by the accumulation of our experiences and the values & priorities we form over time. When we begin working and planning to achieve these goals, we have to make tradeoffs and sacrifices to accomplish them. We make these tradeoffs by investing time, money, and emotional energy in things that won’t benefit our current selves, but will instead benefit a future self whom we don’t even yet know.
This is among the reasons that it’s extremely difficult to begin making these sacrifices. We have to decide between:
Family vacation Vs. Kid’s education
Starting a business Vs. Retirement savings
Kid’s piano lessons Vs. Dream home
The difficulty of these decisions means that when we experience a major setback, such as a market decline, we feel the setback viscerally. When our investment portfolio drops in value, that drop is often not felt in terms of dollars or percentages, but in the goals that we feel have been ripped from our arms, and the sweat, tears, and sacrifices we’ve made that now feel wasted!
Forces outside of my control caused my portfolio to fall so…
“Now I can’t retire for another 10 years!”
“Now my kids are going to have to take out student loans to pay for college; something I swore to myself I wouldn’t allow to happen after I struggled to pay off my own student loans!”
“Now I’m not going to be able to buy any of the dream Florida houses I’ve had saved in Zillow for months!”
"Now I’m going to need to wait even longer to leave the job that I hate to start the business I’ve been planning for years.”
When these events happen, it can be virtually impossible to think analytically. Where our lives and decisions were once driven by joy and hope, times of turmoil and loss cause our other emotions to take over. Fear or anger begin to take root and commandeer our decision-making steering wheel. We seek out any action that seems as though it will fix what’s broken and provide the catharsis we so desperately seek. This often manifests itself as the desire to sell our investments. We tell ourselves that we will just sit on the sidelines, freshly scarred and licking our wounds, until the market hits the bottom, at which time we will jump back into the market with both feet!
Live footage of us running away from the markets
The truth of the matter is that this won’t happen for two simple reasons: the first is that when that bottom comes, we will suffer flashbacks and the other effects of the PMCSD (Post Market Crash Stress Disorder) that we now suffer. The second is that we, nor anyone else, can reliably predict the market bottom.
With the recent carnage in the markets coloring our decisions, we won’t feel comfortable reinvesting our money until the markets “feel safe” or “have calmed down” or “are headed in the right direction”. In reality, by the time we feel comfortable investing in the market again, the market might have already risen past the level at which we originally sold. We will have sold low and bought high; the exact reverse of how we want to invest our money!
Before immediately selling to relieve the pressure of the emotions you’re feeling, you may reach out to your financial planner. You may reach out to better understand what’s going on. You may reach out to complain or even yell at them for the losses in your portfolio!
When you reach out to your financial planner, they will almost certainly give you the (correct) advice not to sell your portfolio. They may try to help you understand the math and the logic behind holding your investments. They may try to help you put the market decline in context by comparing it to historical market declines. Under normal circumstances, when we are in a cold, less emotional state, this information can be very helpful in determining how to invest. However, the truth of the matter is that it’s likely the last thing you want to hear when you’re feeling scared or angry or sorrowful. When we are in these moments of emotional turmoil, we aren’t prepared to hear, let alone listen to, advice based on logic and reason!
It’s the easiest thing in the world for your advisor to tell you that the right thing to do is to hold your investments. After all, while you may have spent time talking about your hopes and dreams with this planner, at the end of the day your portfolio is interwoven with your hopes and dreams, not theirs. It’s far easier to be detached and unemotional when giving advice on someone else’s money than your own. In fact, this isn’t a flaw of hiring an advisor; it’s one of the best reasons to do so!
The best thing, though admittedly far more difficult than simply telling you not to sell and providing you with gobs of data to back up their advice, that your planner can do, is to treat the situation with empathy. Your portfolio dropping in value is scary! One of the best things an advisor can do in a situation like this is to make you feel heard. One of the worst is to make you feel defensive, overreactive, or dumb.
When your planner approaches these situations from a place of understanding, when you feel that the emotions evoked by tumultuous market conditions are valid and normal, when it feels like your planner is on your side trying to help you through the situation instead of an adversary getting in the way of a cathartic action, it’s far easier to begin to leave that emotional state. Only then can we start to make decisions with the logical, analytical parts of our brains.
None of this is to say that your planner is wrong when they tell you not to sell your investments. In fact, I almost certainly agree with their advice! What I’m saying is that how your advisor helps you through these times is one of the truest measures of the value of your advisor. I’m reminded of a quote from Aaron Sorkin’s The West Wing:
“This guy’s walking down a street when he falls in a hole. The walls are so steep he can’t get out. A doctor passes by, and the guy shouts up, “Hey you, can you help me out?” The doctor writes a prescription, throws it down in the hole, and moves on. Then a priest comes along, and the guy shouts up, “Father, I’m down in this hole, can you help me out?” The priest writes out a prayer, throws it down in the hole, and moves on. Then a friend walks by. “Hey Joe, it’s me, can you help me out?” And the friend jumps in the hole. Our guy says, “Are you stupid? Now we’re both down here.” The friend says, “Yeah, but I’ve been down here before, and I know the way out.”
If your advisor:
Is the doctor, explaining to you history, logic, and math only to write you a prescription to hold your investments.
Is the priest and tells you that your faith in the future should overcome your emotional response to sell. That this faith should provide you with all of the emotional stamina necessary to weather the stormy markets.
Isn’t the friend who joins you down in the hole to help show you the way out.
Then it’s high time you found another advisor.