One of the most intriguing mysteries of the sea is the phenomenon of ghost ships. These aren’t spectral crafts that haunt the waves, but rather fully intact boats that are found completely abandoned.
Among the most famous (and baffling) of these is the Mary Celeste.1 In November of 1872 the vessel set out from New York with ten people aboard on a routine voyage to Genoa, Italy. A month later it was found drifting off the coast of Portugal. Eerily, everything on the ship was intact and in working order. In fact, when the passengers and crew deserted the ship, they left everything behind, including the captain’s log.
Over the next 130 years, many speculated on what had happened, including Arthur Conan Doyle (author of the Sherlock Holmes mysteries).
In 2002, researchers used log entries and oceanographic data to reconstruct the most plausible scenario. The captain had misidentified his location, and apparently, faced with high winds and rough seas, thought the ship was sinking. He ordered an immediate evacuation to the lifeboat and abandoned the Mary Celeste.
Sadly, that was the wrong decision. If he had just ridden out the storm, everyone would have been saved.
Greg Iacurci, who reports on finance for CNBC, notes a similar phenomenon among investors.2
“Consider this common scenario,” he writes. “The stock market hits a rough patch and skittish investors bail and park their money on the sidelines, thinking it a ‘safer’ way to ride out the storm.”
The problem with this strategy, as Iacurci points out, is that it can cause investors to miss out on the market’s best days, which often occur immediately after a correction.
According to analysis by the Wells Fargo Investment Institute, over the past three decades the S&P 500 index has had an average annual return of about 8%. Using a hypothetical example over that 30-year period, if an investor had missed only 10 of those days, they would have earned an average of 5.26% return.
If they’d missed 30 best days (just one per year), their average gains would be reduced to 1.83%.
The analysts concluded, “Missing a handful of the best days over long time periods can drastically reduce the average annual return an investor could gain just by holding on to their equity investments during sell-offs.”
Nobody likes volatility. Seeing your hard-earned portfolio drop in value, even for a few days, causes some very unpleasant emotions. However, if you can remember that these rough seas are something you should expect on your long-term financial voyage, you’ll be less likely to make the same mistake as the captain of the Mary Celeste.
For ways to prepare strategically and emotionally for the market volatility that’s sure to come, talk with your trusted fiduciary financial advisor.
If you ever have any questions about your investments or retirement plans, please feel free to give me a call at 801-545-0696.
Regards,
Mark Lund
Stonecreek Wealth Advisors, Inc.
11576 S State Street, Bldg. 1002
Draper, UT 84020
Sources:
1. http://go.pardot.com/e/91522/ghost-ships/95bhy4/2397013725/h/fQAOEuxPZN6mlrOv2Zwu9uF19hjP8d3g6fGJppiW0gA
2. http://go.pardot.com/e/91522/ly-a-losers-game-cfp-says-html/95bhy7/2397013725/h/fQAOEuxPZN6mlrOv2Zwu9uF19hjP8d3g6fGJppiW0gA
Disclosure: This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. All economic and performance data is historical and not indicative of future results. Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This material was prepared by Efficient Advisors, LLC (“EA’) for Mark Lund, Mark is a Financial Advisor in Utah. He is known as a Wealth Advisor, The 401k Advisor, Investor Coach, Financial Planner, Investment Advisor and author of The Effective Investor. Mark offers investment advisory services through Stonecreek Wealth Advisors, Inc. a fiduciary, independent, fee-only, Registered Investment Advisor firm providing investment management and retirement planning for individuals and 401k consulting for small businesses. Mark’s newsletter is called The Effective Investor Newsletter. Cities served in Utah are: Salt Lake City, Salt Lake County, Utah County, Park City, Murray City, West Jordan City, Sandy City, Draper City, South Jordan City, Provo City, Orem City, Lehi City, Highland City, Alpine City, American Fork City. The views expressed herein are exclusively those of Efficient Advisors, LLC (‘EA’), and are not meant as investment advice and are subject to change. All charts and graphs are presented for informational and analytical purposes only. No chart or graph is intended to be used as a guide to investing. EA portfolios may contain specific securities that have been mentioned herein. EA makes no claim as to the suitability of these securities. Past performance is not a guarantee of future performance. Information contained herein is derived from sources we believe to be reliable, however, we do not represent that this information is complete or accurate and it should not be relied upon as such. All opinions expressed herein are subject to change without notice. This information is prepared for general information only. It does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. You should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. You should note that security values may fluctuate and that each security’s price or value may rise or fall. Accordingly, investors may receive back less than originally invested. Investing in any security involves certain systematic risks including, but not limited to, market risk, interest-rate risk, inflation risk, and event risk. These risks are in addition to any unsystematic risks associated with particular investment styles or strategies.
