Episode 97: Predict Less, Plan More

Transcript

Hello and welcome to the Balanced Wealth podcast.  My name is Jarrett Topel.

Today, I want to talk about the recent market volatility and how it is making some people react. It’s April 2025, and you may have noticed that markets are, shall we say, jittery. After an incredibly strong run in 2023 and 2024 — driven largely by artificial intelligence, resilient consumer spending, and stellar corporate profits, the Dow Jones and the S&P 500 have pulled back significantly from their highs. And, for the time-being at least, it appears the Trump bump has become a Trump dump.

The catalyst for this recent downturn? President Trump’s “Liberation Day” tariffs, which introduced sweeping import duties and sparked global trade tensions. Headlines are suddenly filled with worry. In addition to trade tensions, the Fed is walking a tightrope between cutting rates and keeping inflation at bay (not to mention Mr. Powell keeping his job), and investors are dealing with unprecedented market volatility. And, once again, everyone’s wondering: Is this the start of the big one? The major market decline that lasts a lifetime?

And, yes, we all said this when Covid hit, when the US credit rating was downgraded, when inflation hit, when silicon valley bank failed, when Lehman Brothers failed, when Russia once again attacked Ukraine, and on, and on, and on. And these are just a few of the many examples in just the last 15-20 years when people said, here we go, this is the big one… And, of course, none of these were the catalyst to a long-term sustained downturn.

The longest bear market in the last 20 years was the Global Financial Crisis which started in 2007, and which was really nasty, but actually lasted less than a year and a half. And, of course, some day there will likely be a long term major downturn. But, what I am trying to make you understand, is that it is almost impossible to predict. And, once again, people are using the dreaded and dangerous words, “but it’s different this time”.  And, again, one day maybe it is different, but many more times than not, it isn’t.  It just feels that way while were living thought it.

Trust me, I totally understand why it feels different this time (it always does) and why it’s so tempting to follow your gut, but you need to know that it rarely ever works, and why preparation — not prediction — is historically the key to long-term financial success. History shows, that time and time again, even seasoned investors struggle to time the market correctly even once, let alone consistently over time. In March 2020, when COVID-19 crashed the markets, countless investors went to cash out of fear. Many of them never got back in — and missed a recovery that saw the S&P 500 rise almost 70% in just nine months, with many tech stocks doubling or tripling in value in the same time.

In early 2023, inflation was running hot, the Fed was raising interest rates, and talk of a recession dominated financial news. Some investors “played it safe” by staying on the sidelines. Unfortunately, they missed a banner year: the S&P 500 surged over 25%, led by the booming AI sector and unexpectedly strong GDP growth.

Go further back to 2008 — the financial crisis. It was brutal, no doubt. I remember it very well. But those who stayed invested through the lows of 2009 saw their portfolios more than quadruple over the following decade. Those who got out and waited for “clarity” more often than not, re-entered too late, buying back in only after the market had already soared. These folks followed the age old tradition of sell low and buy high.  Oops!

The truth is, markets don’t often reward you for being clever or cautious. They reward you for patience and consistency. If you’re always waiting for the “perfect” entry or exit point, you’ll miss the very moments that generate long-term compound gains. Missing just a few of the market’s best days can significantly impact your long-term investment returns. So, instead of attempting to predict market movements, focus on a well-thought-out investment plan and stick to the plan NO MATTER WHAT.

So, how can you best prepare for market volatility?  Let me give you some tried and true, and easy to implements strategies. First up, as always, Diversify Your Portfolio: Spread your investments across various asset classes to mitigate risk. And, please, understand, diversification does not mean owing 20 different tech stocks and nothing else. Diversification means owing multiple stocks and bonds in numerous different asset classes, including large cap stocks, small cap stocks, large international stocks, emerging market stocks, US bonds, international bonds, real estate, and commodities.

Next up, always maintain Adequate Cash Reserves: Having 6-12 months of expenses in stable and accessible funds can prevent the need to liquidate investments during downturns.  This cash is insurance that allows you stay invested no matter what happens in the markets.

The next strategy to implement is to Rebalance your portfolio Regularly: Adjust your portfolio periodically to maintain your desired asset allocation.  Just like sailing, you set a destination, and come back to course whenever the wind blows you off your desired path.

And finally, Stay the Course: Stick to your long-term investment strategy, especially when markets are volatile.  As I have said on probably every podcast I have every done, time-in-the markets is what really matters, not, timing the markets

Market corrections, while unsettling, are totally normal, and even healthy for a well function market, and if understood and handled properly, can present opportunities. For long-term investors, downturns can be a chance to buy quality assets at discounted prices. Remember, the market has historically recovered from any all corrections and has consistently continued its upward trajectory.

In these uncertain times, it’s crucial to focus on what you can control: your investment strategy, risk tolerance, and financial goals. By planning and preparing, rather than predicting and prognosticating, you position yourself for long-term success.