21-04-2025
Stay invested for the long run? Think again
MARKETS have been extremely volatile due to escalating trade wars – not only between the US and China, but also with more than 60 countries including US traditional allies such as the EU and Japan. In early April, the S&P 500 dropped more than 10 per cent in just two days.
This is not just another correction. It is a geopolitical and economic event we have not seen since the 1930s. Back then, the US introduced the Smoot-Hawley Tariff Act, triggering a collapse in global trade, and markets plummeted. Today, US tariffs have jumped from an average of 3 per cent to more than 20 per cent with far-reaching consequences.
No one knows how long this will last, but because this is unlike anything we have faced in recent decades, we need to respond with wisdom and not blind optimism.
Investment response
One of my favourite stories from Jim Collins' Good to Great is about Admiral James Stockdale, who survived more than seven years of brutal captivity during the Vietnam War. He endured solitary confinement, torture and hopeless conditions. But what kept him going was a powerful belief. He wrote: 'I never lost faith in the end of the story. I never doubted not only that I would get out, but also that I would prevail in the end and turn the experience into the defining event of my life which, in retrospect, I would not trade.'
When Collins asked who did not survive, Stockdale replied: 'Oh, that's easy. The optimists. They were the ones who said, 'We're going to be out by Christmas.' And Christmas would come, and Christmas would go. Then they'd say, 'We're going to be out by Easter.' And Easter would come, and Easter would go. And then Thanksgiving, and then it would be Christmas again. And they died of a broken heart.'
Stockdale went on to write: 'This is a very important lesson. You must never confuse faith that you will prevail in the end – which you can never afford to lose – with the discipline to confront the most brutal facts of your current reality, whatever they might be.'
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Over the past few weeks, many have come out to urge investors to stay the course, to 'buy the dips' and to trust that markets always rise in the long run. While those reassurances come from a good place, I fear they may be insufficient. After all, the S&P 500 took 15 years to recover after the crash of the 1930s.
I am not saying history will repeat itself – and I hope it will not – but if I am going to encourage you to stay invested, I must also prepare you for the possibility of prolonged uncertainty. Otherwise, I risk turning you into an 'optimist' who ends up disillusioned, bails out halfway and crystallises your losses.
Financial planning response
If you had invested in the S&P Composite Index (S&P 500 index was introduced in 1957) at the start of 1928 and held for 15 years through the Great Depression, your annualised return would have been just 2 per cent a year – positive, but hardly sufficient for long-term goals.
That is why as a firm, we do not rely on the S&P 500 alone. We diversify globally, and constantly reassess the long-term expected returns of what we invest in. If those returns are expected to be lower in future, we need to adjust our clients' wealth plans. Staying invested is important – but only when you know what those investments are likely to deliver. Otherwise, you may preserve capital, but not fulfil your life goals.
If you are approaching retirement in the next year or two, it is time to reassess. After a strong decade of returns, your portfolio may already be enough. If so, consider securing the funds you will need for the first five years of retirement now. The blanket advice to 'stay invested' does not apply to everyone.
I recall a client during the 2008 global financial crisis who, despite being financially secure, insisted on divesting his portfolio. He could not sleep or eat due to market stress, and it was affecting his health. So we liquidated his holdings. What is the point of staying invested if your well-being is deteriorating? Asking someone to 'hold on' without understanding their situation is like telling someone with a heart condition to keep running despite breathlessness. It is irresponsible.
Life response
To let this crisis pass without a life response would be a wasted opportunity. During the global financial crisis, I had front-row seats to see how the relentless pursuit of returns stripped many of their peace. Some lost everything they had built; a few even lost their lives.
In 2010, in the aftermath of that crisis, I began to declutter my own life. I reflected deeply and gained clarity on my non-negotiable life goals. I moved back to public housing, kept only a small car for family use, and took public transport to work. I redirected my resources to support what truly mattered.
Living simply and spending below my means gave me peace. It freed me to make life and business decisions without being held hostage by money. I may be in a rocking boat in the middle of a storm, but I have rest.
If you are feeling overwhelmed today, worried about job security, falling investments or growing debt, this crisis might be your invitation to reset. Clarify what really matters. Stop buying things you do not need, with money you do not have, to impress people you do not even know or care about. In investing, do not chase after best returns; rather, use an approach that gives you the highest probability of success. Peace is not found in more – it is found in enough.
So, while 'stay invested' may be popular advice which we give to our clients too – only after understanding their financial situation and life stage – it is not one-size-fits-all advice. Before following it blindly, pause and think again. Do not make investment or financial decisions in isolation. Life decisions must come first. Crises like this are opportunities to realign. Do not waste it because you will never know when the next one will come; when it does, the choices you make now may allow you to sleep soundly, even in a rocking boat.
When we get out of this crisis, I hope you too can echo what Stockdale wrote: 'I never doubted not only that I would get out, but also that I would prevail in the end and turn the experience into the defining event of my life, which, in retrospect, I would not trade.'
The writer is chief executive officer, Providend, South-east Asia's first fee-only comprehensive wealth advisory firm
