5 Biblically Based Investing Tips on How to Navigate the Market DropSubmitted by Miller Premier Investment Planning, LLC on August 24th, 2015
Is the recent volatility in the stock market finding you worried, anxious, or concerned? If your answer is yes please know that you are not alone. It is important to understand that as humans our brains are wired physically and chemically to react emotionally to stimuli in our environment. This fight or flight survival instinct is given to us by God. However, what was designed to help us survive can also work against us in many areas such as investing. These behavioral issues are the number one enemy of every investor. In fact God's word speaks volumes to us with verses such as "Be anxious for nothing..." God knows how he made us and he knows that we need an instruction manual and Biblical advice to help us thru times like these. It is in that spirit that I am going to share with you what many of our successful clients and investors already know in order to empower you to be good stewards of what God has blessed you with and help others. You may want to print these powerful tips out and keep them where you can easily access them when you are feeling overwhelmed. While these tips will address the topics of financial planning, investing, and risk management they can be used for many different trials and tribulations in your life. Here they are:
1) Realize God has great plans for you! The Bible tells us: "For I know the plans I have for you, declares the Lord, "plans to prosper you and not to harm you, plans to give you hope and a future." Jeremiah 29:11 is one of my favorite verses because it gives me and others great comfort. You are a child of God and he wants what is best for you regardless of where you are at right now in your life. However, just like a child what we think is best for us may actually be harmful to ourselves and others. Notice the words "the plans I have for you." It starts with Him! His plans are without fault. After all - He is God! When you are following His plan you will have a peace beyond understanding because you will know without a shadow of a doubt that it will work out for his glory. Most importantly when done right you will have this peace even when others are panicking during the tough times. You may even be able to encourage them. How powerful is that? The question is how do you find His plan for you? Jeremiah 29:12-14 says "Then you will call upon me and come and pray to me, and I will listen to you. You will seek me and find me when you seek me with all your heart. I will be found by you," declares the Lord, "and will bring you back from captivity..." What is holding you captive? If you call upon God thru diligent prayer and seek him with all your heart you will find the plans He has for you and they will break the chains that are holding you back from the wonderful blessings he has in store for you. Unfortunately, it is all too easy to lose the forest thru the trees when it comes to applying this to investing. For this reason, I always pray before meeting or talking with clients or prospects and ask that those meetings go according to his will and honor and glorify him. I start by asking for his guidance daily and I never give financial planning or investment advice without first having a plan in place. It all starts with the plan.
2) "Plans fail for lack of counsel but with many advisors they succeed." Proverbs 15:22 In the book of Romans the Bible goes on to say that God's design and desire is for all of us to work together. In fact, God's word uses the body (church) as an example. We need all parts to work to our fullest potential and glorify Him. We are to rely on each other. God's word is pretty clear on the need for an advisor. In the area of investing and academia there has been much written about the value of an advisor. Vanguard found in a recently published study that the right advisor can add an average of 3% per year to investors total returns over time. Half of this was attributed to protecting investors from themselves. In fact, Eugene Fama (Nobel Prize winner in Economics) and Kenneth French in a recent interview mentioned the personal use of advisors even though they are considered masters of the investment world and portfolio construction. French went on to mention that a good advisor also lends very valuable advice beyond just your investments. The body of knowledge required to navigate multiple disciplines (i.e., investments, insurance, taxes, retirement planning, estate planning, etc) is beyond the capacity of most people. In addition, most people lack the discipline and patience to strictly adhere to a plan, especially when their emotions get the upper hand. So the question isn't if you need a financial advisor. The question is how do you select the right investment advisor? A competent, independent, fee-only financial advisor and certified financial planner practitioner can more efficiently guide you through the process of planning your future, designing your strategies, and navigating the complex universe of investments and financial products. Want some additional tips on selecting the right advisor who will look out for your best interest and get you to where you want to go? You can watch this short video from Smart Money on how to select a great advisor. Of equal importance, he or she can also be your financial coach, holding you accountable to your plan while coaching you through your emotions and encouraging you to the finish line.
3) Tune out the Media Hype & Avoid the Temptation to Time the Market. The media is having a heyday with the recent market drop and will most likely showcase their traditional predictions of much more scary things to come. Understand that the media's number one goal is to get you to tune in for advertising dollars. They can only do this by highlighting how great things are when the market is up -- tapping in to the chemical release of dopamine in our brains. It makes us want to continue watching and piling in their next big pitch. When the market drops they jump on the bandwagon and act like there won't be a tomorrow. You can pull up market headlines from early 2009 to see this in full action. This feeds on our instinctive fight or flight tendencies discussed earlier. We feel the need to "do something" rather than being still and giving it over to God. Therefore, we find ourselves getting wrapped up in the hype and end up doing something detrimental to our long-term plans. That is if we even have a plan in place (see above.) The wise money in this industry calls this media hype "investment pornography" for a very good reason. I watched an excellent presentation done by a very smart fellow at DFA who took these magazine covers, news clips, experts, etc. and showed how they get it consistently wrong. Ask yourself this question: Do you really believe that if someone knew the 15 best stocks for the new year they would release that in advance only to drive the price up on themselves? Best to tune out the investment pornography and tune into God's word, prayer, and your plan instead. I find Psalms to be very uplifting during turbulent times. You can also read the blog "Investors Beware: The Media Noise can be Deafening" for further insight.
4) Your plan should be "battle tested!" First I have to give credit to my associate Justin Owen for coming up with this phrase for how we go about building an investment strategy and managing a portfolio. I love the term because it is something I can definitely relate to with my military background. When we begin building a plan following the steps discussed previously we look at which allocation and diversification strategies give our clients the highest probability of success of reaching their goals thru over 10,000 different market scenarios. These are good markets and the worst of markets. We then throw a bad timing scenario at the investment plan by taking the two worst years in market history and putting it at the very worst point in time for the plan to see if it still holds up. This is really vital when it comes to retirement planning and helping to ensure our clients don't run out of money before they run out of time. We do this because of times like these when the market drops. By finding the allocation and investment strategies that offer the very highest probabilities of success our clients can tune out the media and focus on the things discussed previously. We take the additional step of covering the expectations or risk by discussing their own personal risk number (I call it their sleep at night number) and the range of potential returns over the next six months - both good and bad. They can have the peace of mind that comes from knowing we approached their plan using a Biblical perspective and that they are going to be OK. You can find your own risk number by visiting our home page or clicking here.
5) There is no free lunch & keep the end in mind with a properly diversified portfolio. "By the sweat of your brow you will eat your food until you return to the ground..." Genesis 3:19 The reason we expect higher long-term returns on stocks than on cash and bonds is because they have greater volatility (risk.) In other words there is no free lunch and this is in alignment with God's word. This is also known as a risk premium or market premium. The question is what amount of risk or market exposure is right for you and by following the steps above you will find that answer. Once you find the allocation right for you and your advisor comes up with a well diversified strategy using the approach above you need to stick with it. In fact it is during the big drops that rebalancing should occur to get your plan's allocation back in order. It will look and feel like you are selling your winners and buying more of your losers during these times but actually you will be selling high and buying low taking advantage of the lower prices created by those who are panicking and not following their plan. While a market drop can seem extreme over a period of months or years when looking at a long-term perspective it is a small blip in time. You can read this great article from Jay Mooreland at the Emotional Investor called "It's About TIME" to gain more insight on this and see a real life graphic that drives this tip home. I am a regular follower of Jay's work and love the valuable contributions he is making to behavioral finance.
As you can see the common question I get of "Where do you see the market going over _________?" is the wrong question to ask as nobody has a crystal ball. The right question to ask is which allocation and investment strategy is the best for you to accomplish your goals regardless of the market environment given your limited time, resources, and personal preferences. Follow all of the tips above to find the peace of mind and perspective you need during good times and bad. If you have any questions or want some additional information don't hesitate to reach out to us. We would be glad to help.
Best of Blessings,
Michael Miller, CFP®