Like getting the flu or visiting the DMV, market volatility is one of those facts of life that never gets more pleasant no matter how many times we experience it. As you know, the markets have been very volatile of late. In large part this has been spurred on by the fears and uncertainty surrounding the flurry of policy initiatives in President Trumps first 100 days. They have increased sharply in the wake of the tariffs that were announced Wednesday in the Rose Garden. This has many investors asking, “What should I do?”
As financial advisors, we hear that question a lot. While thinking about that, we came across an interesting story that illustrates a useful perspective:
The War-Time Rules for the Richmond Golf Club
The year was 1940. World War II was well under way, with France having fallen to Germany. When the Germans began bombing England in preparation for an invasion, some of the bombs fell on the Richmond Golf Club in southwest London.
Undaunted, the golfers, many of whom were veterans of World War I, devised a set of “war-time rules” to ensure they could keep playing even during a bombing raid.1 Decades later, the rules were rediscovered.
- Players are asked to collect bomb and shrapnel splinters to save these causing damage to the mowing machines.
- During gunfire or while bombs are falling, players may take cover without penalty for ceasing play.
- The positions of known delayed action bombs are marked by red flags at a reasonably — but not guaranteed — safe distance therefrom.
- Shrapnel on the fairways or bunkers within a club's length of a ball may be moved without penalty. No penalty shall be incurred if a ball is thereby caused to move accidentally.
- A ball moved by enemy action may be replaced, or if completely destroyed, a new ball may be dropped not nearer the hole without penalty.
- A ball lying in a crater may be lifted and dropped not nearer the hole without penalty.
- A player whose stroke is affected by the simultaneous explosion of a bomb may play another ball from the same place. Penalty, one stroke.
We love this story because it illustrates a very important point: Whenever we face uncertainty in life, whenever we’re not sure what to do, it’s valuable to have rules in place that can help guide us and stabilize us. From the Golden Rule to the Fire Rule (stop, drop, and roll), rules make things easy to remember, easy to understand, and easier to get through. So, with those golfers’ plucky example in mind, here are our rules for getting through even the roughest stretches of market volatility:
1. Continue to save and contribute to your retirement accounts. Market volatility often means lower prices. That both lowers the financial barrier to invest and makes it easier to buy good companies. It’s like shopping for Christmas lights after the holidays are over — the prices are lower, but the product is the same. Furthermore, by continuing to save and invest even during volatility, you are positioning yourself for the rebound. Remember, it’s time in the markets, not timing the markets, that matters.
2. Examine your current risk level. That said, there’s nothing wrong with looking at your portfolio and saying, “You know what? Maybe I don’t want to deal with this level of risk.” Many investors end up becoming overexuberant and taking on too much risk during bull markets, and changes in your life sometimes require a change in your investment strategy. After all, even the Richmond Club golfers took cover when the bombs were dropping.
3. Invert the problem. One of the great investors, Charlie Munger, used to talk about how inverting his thinking was his most reliable form of decision-making. In other words, during a time when other investors are trying to figure out the “smart thing to do,” replace that with, “What is the foolish thing to do?” Or “What will I most regret doing in five or ten years?” It's often much easier to figure out what not to do than what you should do. By starting there and working backwards, you will arrive at the correct decision — which is often much simpler than it first appeared!
4. Focus on the proactive elements of financial planning. There is more to reaching your financial goals than investing. When the markets are turbulent, focus on the things you can control to help get you closer to your goals. Look at your cash flow (be deliberate about your spending). Update your will. Shore up your emergency fund. Get your tax planning done. These things will help you stick to your financial plan.
5. Stop and smell the roses. Your money exists to serve you, not the other way around. You are the priority, not the money. Go for a walk. Get the annual check-up if you have been delaying it. Spend time with your family and friends. The best antidote to worry is gratitude.
The British were famous for their “keep calm and carry on” attitude during World War II. The “War-Time Rules for the Richmond Golf Club” is a perfect example of this. The rules they created helped those golfers make sense of a scary situation by continuing to do what they loved. We can apply that principle to every area of our lives — including our finances and including the markets.
One last point. Sometimes, the media will try to get us to choose fear over rules like these. When that happens, remember this. During the War, the Richmond rules became famous even in Germany. None other than Joseph Goebbels heard about them and publicly declared, “The English snobs try to impress the people with a kind of pretended heroism. They can do so without danger, because, as everyone knows, the German Air Force devotes itself only to the destruction of military targets.”1
Still, in the very next raid, German planes bombed the golf club’s laundry facilities.
The members continued playing.
1 “Our Famous War Time Rules,” The Richmond Golf Club, https://therichmondgolfclub.com/war-time-rules