The "Why" Behind "Stay the Course"

Over time people have heard the old saying in investing touting, "stay the course." But why is that a good idea? Let's examine the "why" behind that saying.

1. No one can predict what the market will do in the short-term

Most people are investors, not traders. To be a successful investor, time in the market matters a lot more than timing the market. The stock market is going to do what it will do and no one thing can stop it (not even tweets from the president). You're not a trader, you're an investor. In my experience, all successful long-term investors are continuously acting on a plan. All of the failed investors I've ever encountered were continually reacting to current events - and always the wrong way.

2. In retirement or nearing retirement? Why should you stay the course?

The portfolio is the servant of your financial plan, which in turn was derived from your most cherished financial goals. The progression again is goals - plan - portfolio. You don't see "current events" anywhere in that progression and for very good reason.

So what's the "how"? For clients in retirement and nearing retirement, we hold years of their income goal in other-than-stock-market investments (things like bonds and cash). If we were to move to 100% cash for the long-term, the plan would fail. If we tried to move to cash and "wait it out" we would be timing the market - and since no one can predict the market, it's a fool's game.

3. Minimize Long-Term Regret

The mission of the firm is not to insulate clients from short or intermediate-term volatility, but to minimize our clients' long-term regret. If we know that markets tend to go up over the long-term, we have to control what we can control. Things like rebalancing when appropriate, keeping investment fees low, mathematic/evidence-based withdrawal strategies, etc.

The stock market is volatile (liable to change rapidly), but that is very different from being risky (exposure to permanent loss). We are not gambling, we are investing.