Market Volatility

Broad investment diversification and a long term investment (three to five years) horizon are the fundamental principles of prudent investment management. These are not just the principles that CFM abides by but are also the basis of fiduciary standards and the Uniform Prudent Investment Act.

In addition to investment management, CFM also considers emotional management part of their job. Fear and pessimism are extremely high right now and it is very tempting to say, “Enough,” particularly for those in retirement looking to their investments for living expenses. When it comes to investment decisions, an emotional decision is almost always the wrong decision.

A few clients have indicated that they have a mental benchmark of a particular investment balance and if or when their investments drop below that benchmark they want to get out of the market. That is an emotional decision. We recommend that instead of thinking of your safety net as a particular investment balance think about how much of your portfolio is in fixed income (bonds) and determine the period of time that distributions could be funded from the fixed income component. If fixed income investments could fund distributions three to five years the portfolio is appropriately allocated to endure long term market downturns.


We do not know if the current downturn will last three months or three years. But we do know that markets have an amazing capacity to self-correct by wringing out greed through fear and capitulation. We also know that investors who rely upon prudent investment principles instead of emotion have a far greater probability of long term investment success.

Energy prices will eventually find equilibrium and the financial and housing sectors will find a bottom. Remember that high commodity prices are the result of good news & improved relative global prosperity in developing nations. That improved prosperity will eventually translate into long-term global investment opportunity.

We understand investor fear and desire to facilitate informed rational investment decisions. If you want to meet regarding your situation please do not hesitate to contact us. It is far better to understand and deal with the situation than to it is to experience unnecessary anxiety.


Best regards,


Gary and Josh

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This entry was written by Josh, posted on July 16, 2008 at 12:56 pm, filed under Market. Bookmark the permalink. Follow any comments here with the RSS feed for this post. Post a comment or leave a trackback: Trackback URL.

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Last Updated Oct 2005
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