Are You Hitting the Wall with Your Investments?
/By Shelley Murasko
In my 20s, I ran over 25 marathons. While participating in races from Boston to Catalina Island, I experienced all the highs and lows of enduring miles and miles of running over hills and through the flats.
Among marathon runners, there’s a notorious challenge with distance running called “hitting the wall.” This phenomenon usually occurs around mile 18.
It's all about your glycogen, the carbohydrate that's stored in your liver and muscles for energy. Runners hit the wall when glycogen runs low, making them feel so excessively fatigued that their brain wants to quit.
The worst wall I ever experienced was during the Las Vegas marathon. After running steadily uphill for the first 13 miles, I couldn’t wait to hit the back half, so I could press the cruise button and enjoy a gentle decline into Las Vegas. What happened was an entirely different story! Psychologically, this race crushed me.
First, my mindset was all wrong from the get-go. As a marathoner who has done a fair amount of downhill running, I’ve learned that this type of running can be hard to train for. During my Las Vegas outing, what started as a nice feeling of momentum slowly morphed into persistent agony as my overworked quad muscles screamed for mercy.
Second, it’s rare to feel like you’re “cruising” in the second half of a marathon. As my body’s glycogen stores dwindled, I began to feel drained and depleted. Even with the best refueling at the aid stations, I was running on empty.
In addition to an inadequate mental attitude and a declining physical state, the desert heat became an unbearable obstacle. In Las Vegas, it’s common for the temperature to rise quickly starting around 10 a.m., which happened as I was hitting mile 20. As the heat began to take a toll on me, the remaining miles, though flat, felt like a long uphill battle to the end.
Those final miles brought me to tears, forcing me to slow my pace. I began switching between running a few minutes, then walking a few minutes. Alternating my muscle use helped me withstand the heat and manage my overused joints that ached from head to toe. In addition, chugging water at aid stations and downing sugar gel packs allowed me to keep my focus. Despite an increasing temptation to call a taxi, I managed to cross the finish line battered and blistered, but with a smile on my face.
The Past Decade and Bear Markets
Investing during a bear market—a cycle where stocks at one point dip at least 20%—reminds me of hitting a wall with finances. From 2009 through 2022, investors had a good run. The only official bear market was the four-month dip during the COVID-19 shutdown in 2020. In addition, throughout most of the past decade, investors experienced double digit returns with the exceptions of 2011, 2015, and 2017 when returns were milder.
Fast forward to 2023, and we’re currently in a bear market that has continued for over 14 months. With added stress in the banking sector, investors are becoming less patient with each monthly statement that lands in their mailboxes.
For some investors, this “wall” is becoming intolerable. What makes it even harder is the inability to know how many more miles are left before the market reaches a destination where returns are more favorable. At least in a marathon, you have clear mile markers at various stages of your suffering. Not so with the unknowable investment track.
On average, bear markets last about 1.5 years. If we were currently going through an average bear market, we would have hit the bottom toward the end of 2022, with an expected return to the previous high by July 2023. In reality, there’s no way to know. It could be shorter, or it could be longer.
It's important to note that since 1935 only three bear markets took significantly longer to recover: 1973, 2000, and 2008. Out of 15 bear markets, these three were outliers. In these instances, it took more than four years to get back to even.
While the Federal Reserve Board has continued to take a strong stance toward tightening the supply of money in the economy, investors have become jittery. It doesn’t help that the war in Ukraine continues to persist, putting additional pressure on economies around the world.
While these factors are worrisome, there are positive aspects in the economy. These include a strong job market, wage increases, increased corporate purchasing activity and productivity, and a subtle but clear decreasing trend in inflation.
Fortunately, stocks have made up a lot of ground since January 2022 when the chips first started to fall. Most investors who stayed the course with a diversified bond/stock allocation are down less than 10% today.
Keys for Staying the Course
What should you keep in mind as you go forward from here? First, let’s start with mindset. Remember that the world has faced obstacles before. Whether it be wars, poverty, assassinations, or debt; capital markets have eventually carried on. By surviving bear markets in the past, your mind is better trained to be resilient and patient this time around. After all, fortune favors the patient.
Also, remember that investors who stayed the course were ultimately rewarded with expected market returns. Sometimes it took years to get back on track, but those who stuck it out and endured the pain achieved the gains they were pursuing.
There’s no perfect investment portfolio, and some volatility is a normal part of investing. This is true whether you hold a conservative or aggressive portfolio. As you assess your holdings, ensure that your investing strategy still works for your own personal timeline, risk tolerance, and income objectives.
It also pays to stick to a well-diversified investment approach so you can avoid speculative moves, such as significant individual stock picking or sector concentration. As tempting as it is to be the investor who tries to pick the next Microsoft, this approach to hitting it big rarely works. You’ll have more success being a prudent investor who plans for more reliable returns through broad diversification and steady investing over time. As they say, slow and steady wins the race.
Markets will always be unpredictable, and sometimes volatile, for long periods. We’re in such a time now. Rather than running for cover by selling your holdings when things aren’t looking so good, re-examine your portfolio to ensure you’re still holding high-quality positions for the long haul.
Taking charge of the controllable aspects might help. Try exploring ways to take advantage of this down cycle by considering the following actions:
· Adding money to your investments if you have excess cash on the sidelines. Many high-quality businesses are selling at a discount.
· Consider investing some of your cash reserves in a money market account, high-yield savings account, or Certificates of Deposit, which are now offering rates over 4%.
· Expedite your annual Roth conversion, where you can now convert on depressed values.
· Harvest tax losses from your taxable portfolios if tax reduction is a major goal.
· Sell off low-quality funds or stocks that you held for tax gain avoidance purposes.
By acting on the things you can control, your worries may lessen.
Lastly, find ways to mitigate the pain. Looking at statements or listening to money talk shows less often may give you more stamina during these volatile periods. Enjoying other aspects of your life may also defuse investment stress. In times like these, it’s important to pace yourself and keep an eye on the big picture.
Bear markets may feel like a risk as you go through them, but they often appear as an opportunity in retrospect.
As Charlie Munger, Warren Buffett’s right-hand investment partner, once said, “It’s waiting that helps you as an investor, and a lot of people just can’t stand to wait. If you didn’t get the deferred-gratification gene, you’ve got to work very hard to overcome that.”
Eventually, it’s the patient and disciplined investors who are rewarded at the finish line.
Need assistance staying the course? Give us a call! We’re here to help.
