Saturday, December 4, 2021

Am I a Bag Lady Yet? Don’t Let Short-term Risk Dominate Your Investment Strategy



Ask The CFP® Practitioner
Darcie Guerin
Question: Do I need to worry about becoming a bag lady yet?

Answer: This is the question a friend asked me on Saturday morning at the gym, while we waited for our class to start. Doomsday concerns aren’t uncommon, especially in response to recent market volatility and current political and economic events. Between our warm-up stretches, and cardio, I reminded my friend that there’s a long way between her and a zero, so the likelihood of becoming a bag-lady is quite remote. It’s easy though to understand why people feel emotional and frightened; just turn on the television for confirmation that the end is near.

My friend and I agreed to meet the following week. We’ll discuss her concerns and revisit her financial plan, reminding her of why she owns the investments in her portfolio while assessing the mix between stocks, bonds and cash. Based on her needs and comfort levels we’ll determine together if any adjustments are necessary.

Most people are interested in short-term market predictions, which are difficult to provide with any certainty. Case in point, the U.K. Brexit vote outcome (see the July 22, 2016 Ask the CFP® Practitioner column “Resilience is the Key” for details) was a surprise to many intelligent people. The market fell for two days and then bounced sharply upward, surprising experts yet again. This is one reason why it might be best to avoid discussions about “how will stocks perform before and after the election?” Investors, who typically look for quality in long-term investments (in contrast to traders…) may find it more constructive to focus on financial planning rather than trying to time the market.

In 1979, Business Week ran a cover story titled “The Death of Equities.” The article said, “The old attitude of buying solid stocks as a cornerstone for one’s life savings and retirement has simply disappeared…The death of equities is a near permanent condition.” (Forbes: “6 Doomsday Predictions That Were Dead Wrong About the Market”). Three years later, stocks began an 18-year bull run.

“But it’s different this time, we just reached new highs!” This proclamation is usually heard right before two types of emotional investment behavior. The first type of individual is usually frightened that they may miss out and are willing to abandon their plan to chase what’s “hot.” The second type have decided that a new market high is a good time to cash out and sell everything! One big problem with this approach is knowing when to reenterthe market.

Since the bull market started in 2009, there have been forty-five record highs in 2013, fifty-three in 2014, and ten in 2015 (LPL Research). Just during the month of July this year there were six more highs. By itself, a new high isn’t a reason to sell. This is why regularly reviewing and monitoring your portfolio and making decisions based on your personal investment policy statement is recommended.

When fear is high, some investors become uncomfortable with stocks. This even occurs with garden-variety corrections that “only” push markets down ten percent. If this sounds like you, it may be time to revisit your tolerance for risk and your portfolio breakdown between cash, stocks and bonds. Also, any changes in your personal situation may warrant updates to your financial plan and call for a conversation with your advisor.

A Look Behind The Rally

The upward move in stocks comes at a time of immense uncertainty. Worries about the global economic outlook linger, China is still a concern, and Europe’s slow economic recovery and fragile banking system are problems that won’t soon go away. However, the U.S. has been and remains the nicest house in a bad neighborhood providing a perceived safe-haven for funds. It’s somewhat counterintuitive, yet after Brexit, nervous cash in Europe may actually be seeking safety in the U.S., helping our markets. A cautious Fed has also been a plus for equities simply because low interest rates create less competition for stocks.

What’s a Gal To Do?  

Undoubtedly, there is plenty of political and economic uncertainty. We’re climbing the proverbial “wall of worry” as we enter the eighth year of a slow economic recovery (National Bureau of Economic Research). This expansion is no longer young, global uncertainty is high, we’re in an unusual election cycle, and at best, this has been a substandard recovery. Eventually we will enter a recession, which usually leads to a downturn in stocks. No one knows when this could happen but it will. Declines in the major averages are unnerving, yet historically they’ve run their course, often setting the stage for another upward cycle.

To diminish the fear of becoming a bag-lady it is helpful to establish and regularly monitor a personalized financial plan (that you understand). Know what you own and why you own it as you stay focused and plan accordingly.


Information contained in this report was received from sources believed to be reliable, but accuracy is not guaranteed. There is no assurance that any investment strategy will be successful. The opinions expressed are those of the writer, but not necessarily those of Raymond James and Associates, and subject to change at any time. Diversification does not ensure a profit or protect against a loss. All investments are subject to risk. Past performance is not a guarantee of future results.  

“Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.”

This article provided by Darcie Guerin, CFP®, Vice President, Investments & Branch Manager of Raymond James & Associates, Inc. Member New York Stock Exchange/SIPC, 606 Bald Eagle Dr. Suite 401, Marco Island, FL 34145. She may be reached at 239-389-1041, email Website:

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