Time to Access Your Long-Term Memory

Wow.  If you are an investor, the past few weeks have been enough to scare the life out of you—or at least make you rethink your comfort level with equity investments.  There has been no shortage of bad news from pundits around the dial, all proclaiming that ‘this time it is different’ and urging you to ‘stash your cash.’

With the recent approval of the Troubled Assets Relief Program (TARP), and drastic actions being taken by governments around the world to repair the global credit markets, it is logical for investors to be confused and scared regarding what it all means for their investment portfolios.  However, although today’s credit crisis is a new occurrence that is impacting the economy, this crisis is not the first time world markets have encountered turbulence that was perceived as ‘different’ and ‘potentially devastating.’

One needs to look no further than the past few decades to see events that, at the time, many perceived as disasters.  Most investors can remember the bear market and gas wars of the early 1970s or the Savings and Loan scandal and ‘Black Monday’ in the 1980s. The 1990s had no shortage of these doomsday events with the junk bond market collapse and the Gulf War, while earlier this decade the technology bubble had investors running for the exits.

What has been the result of all of these events?  Has the economy ceased to exist as we know it and the markets collapsed?  After every single one of these ‘this time it is different’ events, the market has gone on, over time, to reach new highs.  The world did not cease to exist, in fact, it prospered and rewarded investors who had the fortitude and discipline to maintain their positions and not panic.  Investors who had the courage to rebalance their portfolios in these dark times realized even greater gains.

Although no one knows for certain what will happen, I would argue that this point in time likely will prove to be no different than the trying times weathered in the past.  Although it has been painful to see the Dow Jones Industrial Average plummet on an almost daily basis, history provides cause for optimism.  The media will have you believe that this time the markets will never recover because that is what sells newspapers and grabs headlines. But history tells a different tale. A wise man once said “To know nothing of what happened before you were born is to remain forever a child.”

Wise and prudent investors are keeping their cool in this market, remaining disciplined, and sticking to their investment policies.  They see incredible bargains in the market that they can take advantage of.

Being that wise and prudent investor is a hard task, but one that can be achieved by simply staying the course and not wavering in your investment approach.  If the approach made sense from 2004 to 2007 when the market was going up, it did not suddenly lose all value because the market has hit a downslide.  Trust in your approach, in what history has taught you, and you may reap rewards.

Dorn, Tony square

Tony Dorn, MBA, CFP®


Additional articles