Hello. I'm Laura Rotter of True Abundance Advisors.
I'm talking to you today during a period of heightened anxiety. Of course, with the recognition that you know I could have said this over the last two years, But we're now living through a large geopolitical event. Russia has invaded Ukraine and we've seen and are seeing the horrific images in the press. Our hearts go out to the citizens of Ukraine.
We're also seeing the repercussions domestically. Gas prices are the highest they've been in years. Commodity prices are soaring. There's a lot of uncertainty and because of this there's a lot of volatility in the stock market. So I want to talk to you about some behaviors i see in people during periods of heightened volatility like this.
I recognize these are emotional reactions and our emotions are an important part of us, but to the extent that, you know, I name these behaviors you could, you may then recognize them in yourself and recognition and awareness is the first step to change. So the first behavior I see is this sort of inclination to pick up the phone to whoever is managing your portfolio and say "I want to sell," "I want to go to cash," because, of course, you're seeing, you know, your retirement dreams potentially disappear in front of your eyes or your dreams of in the next decade or so, you know, sending your child to the college of your choice.
So this knee-jerk reaction is to panic and to sell and go to cash. And ,just want to make you aware, that that decision requires two right decisions and by implication could potentially, um, have two wrong decisions. Which is, of course, you know, to time the market correctly to sell, and market timing. I believe is a fool's game, but even if you get that right, even if you time the sale of the stocks you own and go to cash correctly, you also have to time the entrance, you know, getting back into the stock market correctly which is very hard to do.
Studies show that, you know, the biggest market up days take place often right after the biggest market declines. I'm talking you today, a day where, you know, the Dow closed up over 600 points and if over time you're constantly trying to get in and out of the market your long-term performance, the growth of your portfolio over the long term will certainly suffer.
The second mistake I see people make is having cash and when the market is on sale ,not investing it. I mean the stock market is a strange asset in that when it's expensive, when it's marked up, everybody wants to buy it and when it's on sale, when it's declining, everyone's terrified; nobody wants to buy it. So if you have a target, you know, equity allocation of your portfolio, let's say 60 percent, and after a market decline you're under that allocation, I recommend using some of the cash that you might be holding to bring your portfolio back up to the stock target allocation that you have. And if that's too scary to do, then use the behavioral approach and just, you know, take a little bit each month and reinvest it in the stock market.
Then finally my third piece of advice is to have a diversified investment portfolio, and the most obvious diversification is to not only own stocks but own bonds. All my clients own a bond ladder of CDs or government bonds that have no credit risk and that's the ballast to the portfolio. It sort of, it steadies the portfolio during periods like this of stock market volatility. So I hope these thoughts are helpful as we all experience the anxiety and emotions that, you know, are part of our days with this current new cycle.
So please, go out there live your life on purpose.