Remember That Short-Term Pain Brings Long-Term Progress: The Witch of October Has Arrived

– October has a history of being a volatile month for the stock market.
– The October scares can be traced back to the agricultural financing cycle in the 19th century.
– Farmers would withdraw large sums from banks to fund their fall harvest, causing banks to withdraw funds from larger financial institutions, making the market vulnerable to panics.
– Even with the transition to an industrial economy and the establishment of a central banking system, investors still panic in October out of habit.
– Tactical asset allocation, or passive drift away from target allocations, is a common mistake investors make in volatile markets.
– It is important to rebalance portfolios during times of volatility to prevent long-term negative effects.
– History has shown that failure to rebalance can result in financial ruin and drag down long-term returns.
– Institutional investors often neglect to advise clients to rebalance because they are advised by non-discretionary investment consultants.
– Trustees need to take the initiative to ensure that portfolios are rebalanced during times of volatility.
– Ray Dalio advises seeking painful feedback to attain the insight necessary for progress.
– Economic pain is necessary to correct past mistakes and ensure future economic stability.
– After past recessions, the US economy has come back stronger, driven by technological innovation.
– Investors need to steel their nerves, rebalance portfolios, and trust that short-term pain will be rewarded in the long run.