Volatility is Back

“Volatility is back,” a Portfolio Manager from First Fiduciary Trust declared at a business lunch last week.  She and the subsequent panel speakers were talking about the recent plunges and surges in the stock market.  After more than a year of rising stock prices and very low (if any) volatility in the market, the last couple of weeks have proven that those calm waters may be a thing of the past. Uncertainty once again rules the market, and therefore our financial wellbeing.

Normally, the market fluctuations and the declaration of rising volatility would send me into an emotional tailspin.  My bag lady syndrome would take over my entire being, panic would set in, and I’d run for cover (under the sheets). Weird that I’ve been calm. Odd that I haven’t thought about converting all of my holdings to cash and then stashing the bills under my mattress. Surprising that, in response, I haven’t sold my designer clothing, the artwork on my walls, the walls themselves.  Even a recent date told me about his stock selling frenzy (before the markets rebounded), and how nervous he is about the markets. I assured him that this was a blip on the radar screen; I told him not to panic. I lectured about how the media is creating an artificial panic by focusing on the point drop rather than the percentage drop (minimal) in the stock market. I added that the fundamentals remained sound and the economy was not in a freefall.  I can’t begin to describe how unusual my reaction is for me.  I’m actually amazed that my portfolio manager didn’t call me to ask why I didn’t call her; as she knows how low my risk tolerance is.

Am I delusional?  Have I drunk too much of the “Investing-is-a-good-thing” Kool-Aid?  Am I in shock?  Am I in denial?

 No, no, no and no.

Four years ago, when I became a divorced woman, I reexamined what was important to me from a financial perspective. I had to as, suddenly, my life was dependent on “my” money, not “our” money, which, just in case it is not abundantly obvious, is an infinitely smaller pot. Taking pen to paper, I wrote in caps and in bold: FINANCIAL SECURITY AND PEACE OF MIND.  I created every possible QuickBooks report that would reflect my financial portfolio. I then constructed an annual budget I could likely afford.  I took all this information to a financial planner and said, “How long will this last, assuming a very low return on my investments and this level of spending? AND, read my top line carefully, as I am serious about my financial security and peace of mind.”

We argued about the low return I insisted she use, as she thought it was way too low.  I explained to her that I needed, on an emotional basis, to look at a potential worst-case scenario. If I was financially secure in that illustration, I would be even more secure in a higher returns situation.  NOTE: Okay, there are worst cases – another Depression, Armageddon, nuclear war, etc.  I can't even go there because even if I were to squirrel all my dollars under my bed, that would get me nowhere in those devastations.  Even my Bag Lady can’t go there.

According to her prediction, I was good to go until sometime in my 90’s. Okay, I thought, I’m prepared.  I’m prepared because I’ve put my affairs in order from the vantage points of the intellectual and emotional sides of my money.  And, as I used a low rate of return in the predictive model of my finances/life, when the market volatility recently returned, I was able to go back to my report and find comfort in that ‘security blanket.’

That was all well and good until last year when I suddenly had several unexpected expenses come my way, including the new tax law, which increased my annual costs by 50%. So much for my budget. My knee-jerk reaction?  Sell my home, take money off the table in my illiquid real estate investment, improve my annual cash flow, and move into a studio apartment.  This makes perfect sense considering my bag lady syndrome, so, to the real estate section, I went in search of a tiny place I could afford. 

But here’s the deal; I love my home, it’s my sanctuary, it’s the sanctuary of others as well, and, yes, while it is only property, it is only a ‘thing’, I really didn’t want to leave it just yet.

My next reaction?  Go back to the budget. The filtering question:  What can be taken away? 

This was reality time, people.  I had to own up to my expenditures. What did I have to spend each month on necessities? What did I want to spend on various luxuries? What was need vs. want?  Not only did I examine my living expenses, I paid close attention to services I was outsourcing. What was I capable of doing myself, and what did I need (or want) to pay others to do for me? 

Case in point: I pay a professional portfolio manager a lot of money to recommend and manage my investments.  I have an MBA; I worked on Wall Street; and I understand the markets, asset allocation, and investment theory.  I’ve not only invested my own money, I invested other people’s money as well. 

Here’s what I learned:  I’m horrible when it comes to my own investing.  All my objectivity is overpowered by my emotions.  Put a little pressure on me and the panicked bag lady comes out in full force.  I once said, “My version of asset allocation is to put all your money under several mattresses, not just one.”  The people in the room--this I said during a quarterly review meeting with my ex-husband and our financial managers--laughed…I was only semi-kidding. 

Could I save money investing my own money?  Perhaps.  This assumes that my intellectual capability could win over my risk-averse/financial security fear incapacity.  I am aware of the difference between risk (“known unknowns”) and uncertainty (“unknown unknowns”) which hinders my investing clarity. This also assumes that my life wouldn’t be utterly consumed 24/7 by my watching the markets like a hawk.  Do I really want to watch CNN 24/7, a station I avoid like the plague? Do I want to bet my PEACE OF MIND on being better than the professionals; who watch/research/model investments for a living? No and no.

And this is where telling the truth to yourself is vitally important.  This is where the judgment of others falls short.  

My clients and I discuss their assets from these vantage points: values, priorities, fears, wants, and needs.  The acceptance of what you have, of what you are dealing with, from an all-inclusive perspective.  My premise is that when we open to a broader picture, we are more likely to embrace our decisions.

This is why I haven’t panicked…yet.  I know me.  If the markets continue to roller-coaster (which I never liked riding even as a kid), I know I will have all sorts of reactions and probably few will be as calm as what I am experiencing now.  After all, my portfolio manager is on speed dial.