Fidelity Investments sent a brief and only slightly reassuring e-mail to its 401(k) customers last Thursday. “The extraordinary events of the past few weeks have tested the portfolios and the confidence of investors around the world,’’ the e-mail began. “We understand.’’
The empathy was appreciated. So were the main points of Fidelity’s simple message:
•Market volatility is normal.
•Investments should reflect risk tolerance and investment time frame.
•Stay focused on long-term goals.
Those basic principles have guided knowledgeable investors for decades, through bull and bear markets. Still, when the markets closed Friday after the worst week ever for stocks, even the most patient among us were questioning our faith in all things financial.
At the workplace water cooler, at church and, yes, in taverns in Minnesota and across the country, the stock market’s 2008 chaotic ride has been Topic A the past few weeks. When your 401(k) account loses 30 percent of its value in nine months, it’s easy to forget history’s lessons. When words such as “crash’’ and “depression’’ crop up in headlines, and CNBC replaces ESPN as the most-watched TV station at the office, we’re stumbling into uncharted territory. That’s exactly why the best advice is to breathe deeply and get back to basics.
When individual investors lose confidence in the markets, they tend to make irrational decisions. That’s understandable. Over the past 15 months, Americans have lost about $2 trillion in retirement savings, the Congressional Budget Office reported last week. Numbers like those — on top of an unprecedented $700 billion bailout and growing global economic uncertainty — make fear a rational response.
“One of the side effects of this market is that people are losing their confidence in the long term,’’ said Ross Levin, the founding principal of Accredited Investors Inc. in Edina and a contributing columnist to the Star Tribune.
For the past several months, Levin has been calmly advising his clients to stay the course, reminding them about the value of diversification, economic equilibrium and focusing on the long term even in the most uncertain of times.
“I think the key advice is that the one thing we can count on is impermanence, and so the way things are today are not the way things are going to be tomorrow,’’ he said Tuesday.
Most people who have lost a job, gone through a difficult divorce or simply struggled to make ends meet know that situations improve over time, Levin said. “Things look the worst the closer we are to whatever that particular event is. … Time tends to cushion the effects of these major life changes, as well as these financial swings.’’
As Levin advised his clients in mid-September, today’s market conditions are indeed different from those that prompted the collapse of the high-yield bond market in 1990 and the technology stock meltdown in 2000-2002. But what causes a decline in the stock market is less important than when it will bounce back, he pointed out. After both of those earlier declines, the Standard & Poor’s 500 index jumped almost 30 percent within a year.
It’s worth noting that those who failed to take the long view and pulled out of the market before Monday missed the Dow’s biggest one-day gain since 1933. Maybe Fidelity should have added one more bullet point to its e-mail: Invest while stock prices are low.