A Few Investing Reminders
It’s been an impressive run for stocks over the past year and clients have been rewarded for being patient and sticking with a disciplined, evidence based investment strategy. After seeing significant gains, however, it can be easy to forget that there were bumps along the way and that markets don’t always go up in a straight line. Unfortunately, I don’t have a crystal ball to tell you what direction markets will go over the next several weeks or months (run from anybody that tells you they do!), but it’s imperative that we prepare ourselves emotionally, so that when stock markets do experience an inevitable correction, we aren’t caught off guard. Below are some helpful insights to remember as we begin 2018.
Market timing doesn’t work – Trying to predict market movements and market peaks is an impossible task. Not only do you have to get the timing right when you sell, but you also must get the timing right when you buy back in. What if you were completely wrong and markets continued to go up? What if you were right and markets rebound swiftly? Then factor in any tax consequences, trading costs, and market timing quickly becomes a losing proposition.
Markets will go up and down – It can be easy to forget about all the stress and emotional havoc that comes into play when markets do decline, especially after markets have done so well for such a long period of time. As such, there is no better time than now, when markets are hitting all-time highs to prepare yourself and acknowledge that market corrections will happen in the future and when they do, there is no reason to panic.
Tune out the noise – The financial media does an exceptional job of spreading fear. The news and headlines can make even the most experienced investors challenge their investment discipline. Some messages tempt you to chase the latest investment fad (think cryptocurrencies), while others might create anxiety about what the future holds. When these messages flash in front of you, always consider the source and try to maintain a long-term perspective.
Stay focused on your long-term plan – Whether it’s saving for retirement, funding your children or grandchildren’s education, saving to purchase a home or any other financial goal, focus your attention on the things you can control. These include getting your asset allocation (mix between stocks and bonds) right given your time horizon and ability to handle risk, keeping costs low, automating any investment account contributions, and avoiding making any emotional investment decisions when we do see declines.