With stock market volatility hitting levels not seen since the financial crisis of 2008, Gideon Drucker, a Certified Financial Planner and author of the new book “How to Avoid HENRY Syndrome,” provides the following comments:
Q4 2019 hedge fund letters, conferences and more
In his new book, Gideon says people get into trouble when they let their emotions destroy their financial plans, like letting fear push them into panic selling their investments during a stock market freefall. This is similar to (and related to) the coronavirus panic now disrupting lives and markets worldwide.
“The way we, as investors, react to investment performance can freak us out and overwhelm us to the point that we devastate any possible chance for investment success,” Gideon says. “We panic during market downturns and chase the hot fund in our portfolio when things are up. These moments that make us human and normal are also the most formidable challenges we face in achieving the sort of investment success we strive for. We can’t control the markets, but we absolutely can control our own behavior.”
Explaining HENRY Syndrome
Gideon’s advice for investors during this and other times of extreme volatility:
- Don’t Panic! Instead, look at the facts. Every single market correction in history has been followed by a more powerful and, ultimately, permanent upward climb. In fact, since 1946, the stock market has lost 20% 14 times, or about once every 5 years! Despite that, every single rolling 15-year period in the stock market’s history has resulted in positive returns, and the stock market as a whole has increased over 150 times over that same period! This time is not different, and the world is not coming to an end. Our behavior is scarier than the market correction itself.
- Have a Real Financial Plan. Your portfolio is NOT the plan. A real financial plan is one that defines and depends on your goals, your investment-time horizon, your income, and your expenses. Having a comprehensive plan prevents “freak-out risk” and ensures you won’t fret about temporary corrections. In fact, you will realize that market corrections are actually a huge opportunity to buy great companies on sale!
- Know the Purpose of Your Investments. Every dollar you spend has a specific purpose, and so should your investments. Segmenting assets by time horizon (when you ultimately need to spend down the money) means you won’t be fazed by market volatility. Placing assets into Now, Soon, and Later buckets means you will be prepared to take risks where you should while protecting the assets where you must.
A Word of Caution: Achieving long-term investment success has nothing to with outsmarting the stock market or speculating on the short-term market outlook. Investing in the stock market as a whole (not even trying to find the “best” stock, sector, or fund) and then staying away from your statements has historically resulted in better than a 7% annualized return.”
More About Gideon: Gideon Drucker, Certified Financial Planner, is a third-generation advisor at his family’s NYC wealth management firm, Drucker Wealth. A Forbes Next Gen Advisor, Gideon is the Founder and Director of the firm’s Wealth Builder Division. He is the author of the new book “How to Avoid HENRY Syndrome: Financial Strategies to Own Your Future.” HENRY stands for High Earner, Not Rich Yet. He developed the HENRY Syndrome™ suite of services to educate and empower young professionals, newlyweds, and young families to make smart financial decisions for their futures. Learn more at www.DruckerWealth.com.