The four most dangerous words in finance: “This Time Is Different”. Those who believe that the current ‘crisis du jour’ that is wreaking havoc on the economy and markets will somehow derail the long-term upward trend of advance, are doomed for failure.
Investor: “But this crisis, I mean, it’s so bad, we’ll never get back to normal! I need to go to cash and put a significant portion of my portfolio in gold.”
Me: “The long-term wealth generating machine known as the US stock market is still intact. Innovation is alive and well, companies are adapting, free markets are adjusting. Those who are patient will be rewarded.”
Investor: “No, you’re wrong, this time is different.”
Me: wincing as those destructive words pass through the very core of my being
Me: “Investor, please know that we will get back to normal. It may not happen immediately, but it will happen. In the Civil War, the US lost 620,000 men, 2% of the population, an equivalent of more than 6 million people today. WWI, WWII, the Spanish Flu, bank system failures, democrats, republicans…insert your favorite crisis here…in every case, the US recovered and continued to prosper. No one thought anyone would fly again after 9/11, the airline industry fully recovered and then some. It may not happen on your preferred fast timeline, but day-by-day, week-by-week, month-by-month…progress will be made.”
The decision of what the investor does next is a true fork in the road. I’ve spent my career coaching my clients to not fall prey to the “This Time Is Different” mentality. Some have listened, some have not. Those who have are on track to reach their financial goals. Those who have not heeded my advice, well, at least gold is shiny!