In 2021, economic policymakers told us that inflation was transitory. In 2022, they changed their tune and said that inflation is persistent. They both could be correct, depending on the time frame being used. When it comes to long-term investing, many of the circumstances we experience today may feel like they will last forever but are likely just transitory. 

Big Historical Events Were Transitory 

The Great Depression was transitory. So was the Civil War and every war mankind has engaged in. The Great Financial Crisis was transitory. Basically, anything that happens in life, no matter how long it lasts, is transitory so long as it has an end…eventually. 

The definition of transitory is “of brief duration, not persistent.” But therein lies the ambiguity. How long is brief? How we define “brief” is subjective based on the individual, the time horizon, and the activity undertaken. Is 30 minutes brief? Not if you are holding your breath. What if you are an investor? 30 minutes shouldn’t even register. 

Transitory Events Can Cause Permanent Damage 

We may amuse ourselves debating whether something is transitory or not, but what really matters is that an event can cause great damage regardless of how transitory it is. Millions have died in transitory wars. Many people suffer throughout their lives due some transitory abuse they experienced. Many investors had to significantly adjust their lifestyle from the transitory Great Financial Crisis because they sold during a transitory bear market and made their loss permanent. 

Historically, the markets have never not recovered from a significant downturn. The adage, “this too shall pass” is embraced by some of the most successful investors. Investors that construct an investment portfolio in line with their situation, needs, goals, and risk preference may be able to better withstand the transitory bear markets. 

How Do You Define Transitory? 

Most investors have a long-term strategy and plan. But many are influenced to make important financial decisions based on transitory headlines and market movements. One of the best things you can do during a difficult time in the market is ask yourself: Is this situation transitory? You will find that crises, while they may last a while, tend to be transitory as businesses and consumers adapt and adjust. Such perspective will help you stay the course and even be able to take advantage of others’ shortsightedness. 

© The Behavioral Finance Network