The conclusion I hope you reach is that it’s unrealistic to think you can outguess markets. You’re probably better off expecting that markets do their job of capturing the human ingenuity taking place every day across thousands of publicly traded companies around the world.
What do I mean by markets doing their job? When news of the pandemic hit, markets adjusted and prices went down. In other words, when uncertainty peaked around March 2020, investors demanded a higher return to jump into the market. Then, when news of a vaccine spread, the market adjusted its expectations accordingly. In the short term, there are often wild swings up or down. Making a change during either can be dangerous.
The past three years were a good test of whether or not you had an investment plan that was sensible to stick with. So take a moment to think about why you did what you did, and prepare for next time. Because the next three years may be just as uncertain.
First, make sure your investment plan is sensible and based on financial science. Second, make sure it’s realistic for you and your own unique situation. Even the greatest plan is no good if you can't stick with it during tough times. Invest in markets in whatever asset mix is right for you. If you’re not sure, talk with a financial advisor who can help you.
As advisors we don’t make predictions, but we do believe in the power of human ingenuity to fix problems big and small, innovating the whole way. What has stayed constant throughout decades is the power of people to make progress in the face of challenges.
We’ve seen it in the fight against COVID-19, where vaccines developed at lightning speed are now being administered around the world. We’ve seen it in the continued progress of gene therapy, which is revolutionizing the treatment of multiple diseases. So as we start 2023, let’s remember the lessons of the past three years. Let’s develop—and stick to—plans that take us through the short-term ups and downs of market fluctuations so we can capture the long-term benefits of human ingenuity.