Have you ever seen a grapevine after the harvest? What was recently a huge bush full of fruit, becomes a lonely, barren stick in the dirt. Rows and rows of sticks stretch across the vineyard for months. Winter is not a beautiful time to visit vineyards, but it is a great time to witness the winemaking process.
Right now, your portfolio probably looks like a barren grapevine. The S&P 500 Index is down almost 23% year-to-date, and the tech-heavy Nasdaq is off more than 30%. Bonds, traditionally a safe haven during a bear market, are having one of the worst years on record. The Bloomberg Barclays US Aggregate bond index has declined 15% this year. Lest you think there was anywhere to hide, cash, now providing a juicy 2.5% yield, is far behind a 40-year record high for inflation at 8.3% over the past 12 months. This is the longest market downturn since the Great Financial Crisis. It’s rough out there.
I have good news for you. All of the potential of your portfolio remains. Assuming you didn’t panic sell, you still own all of the shares and are likely reinvesting dividends at lower prices. Like the grapevine, the root system is still intact. If you are lucky enough to still be earning and saving, you are buying new shares at a discount. When the market falls, expected returns rise. The future is bright from here.
I’ve been to Napa Valley once, for a friend’s bachelorette party. Before you envision me on a party bus with a huge crew wearing matching tee shirts, let me tell you this was a low-key event. Four friends in a rented town car did Napa vineyards one day, dinner at French Laundry, then Sonoma the next day. We chuckled at the party bus crews as they stumbled in and out for the next wine tasting.
We were lucky to be in Napa at a very exciting time of the year, early March when the first buds appear on the grapevines. Those buds are a tiny speck of green on a plant that otherwise looked dead. Within a couple of months, those plants would be 8 feet high and begin producing the sweet little round fruits of Chardonnay, Pinot Gris, Cabernet, and Cab Franc. Your portfolio will see first bud again.
While the timing of a bear market is not as reliable as the grape growing seasons, spring will eventually come. Your challenge is to remain patiently in your seat through the worst of it. This is the single hardest thing for an investor to do. The urge to “do something” to save yourself from the pain is often too much. Jumping ship during the height of the storm is the most common and costly mistake investors make.
I understand the urge to bail, especially this year when the diversified portfolio isn’t working as it should. Perhaps this barren grapevine analogy can be helpful. If your financial plan is healthy, it is also safe to enjoy the fruit. For most people, the goal is not to die with the highest portfolio value, but rather to safely enjoy their hard-earned resources.