In times of market stress, it is not unusual for people to overweight their immediate reactions and let their emotions, mainly fear, drive their behavior. Typically how investors feel about risk is based on emotional reactions to recent events. Sometimes feelings can be so strong that they cloud rational thought leading to impulsive actions.
During times of high volatility, it can be tempting to get out of the market. Remember that 15 times since WWII the market has dropped 19% or more (it happened in Q4 2018) – an average of once every five years. Market declines are normal!
Stay the Course
Stay invested so you don’t miss the markets best days, many people get nervous when the markets fall and pull their money out; this missed opportunity causes investor’s returns to not reflect the real market return. You can see from the chart below that missing just the best ten days over a 15-year time frame causes your value to drop nearly in half.
Peter Lynch, one of the greatest historical money managers once said, “The real key to making money in stocks is not to get scared out of them.”
Some of the biggest gain days follow some of the tougher loss days. In the chart below, you can see the Dow Jones Industrial Average swings in just in the past few weeks.
Set Goals and Make a Plan
All successful long-term investing is GOAL-Oriented and therefore driven by a plan. All unsuccessful investing is MARKET-Oriented and is performance driven. Having a goal-focused, plan-driven portfolio, guided by patience and discipline, properly allocated broadly diversified and regularly rebalanced is our client’s best chance to achieve superior long-term real life returns.
Goals dictate plans. Plans dictate asset allocation. Asset allocation dictates disciplined diversification into the proper investments. The critical variable becomes BEHAVIOR.
Investing Is A Long-Term Proposition
Implementing an investment plan is easy. Staying with the plan for years and decades and especially during volatile times is the hard part.
The great long-term risk isn’t losing your money, it is outliving your money.
The great long-term risk isn’t loss of principal but erosion of purchasing power.
The great long-term risk of stocks is not owning them!
How many times has the market bounced back from a major sell off? EVERY TIME.