Focusing on Your Strategy During Turbulent Times.
Investors are people, and people are often impatient. No one likes to wait in line or wait longer than they have to for something, especially today when so much is just a click or two away.
This impatience also manifests itself in the financial markets. When stocks slip, for example, some investors grow uneasy. Their impulse is to sell, get out, and get back in later. If they give in to that impulse, they may effectively pay a price.
Across the 30 years ended December 31, 2018, the Standard & Poor’s 500 posted averaged annual return of 10.0%. During the same period, the average mutual fund stock investor realized a yearly return of just 4.1%. Why the difference? It could partly stem from impatience.1
It’s important to remember that past performance does not guarantee future results. The return and principal value of stock prices will fluctuate over time as market conditions change. And shares, when sold, may be worth more or less than their original cost.
Investors can worry too much. In the long run, an investor who glances at a portfolio once per quarter may end up making more progress toward his or her goals than one who anxiously pores over financial websites each day.
Too many investors make quick, emotional moves when the market dips. Logic may go out the window when this happens, in addition to perspective.
Some long-term investors keep focus. Warren Buffett does. He has famously said that an investor should, “buy into a company because you want to own it, not because you want the stock to go up.2
Buffett often tries to invest in companies whose shares may perform well in both up and down markets. He also has famously stated, “If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes.”2
In contrast with Buffett’s patient long-term approach, investors who care too much about day-to-day market behavior may practice market timing, which is as much hope as strategy.
To make market timing work, an investor has to be right twice. The goal is to sell high, take profits, and buy back in just as the market begins to rally off a bottom. But there is volatility in financial markets and the sale at any point could result in a gain or loss.
Even Wall Street professionals have a hard time predicting market tops and bottoms. Retail investors are notorious for buying high and selling low.
Investors who alter their strategy in response to the headlines most often end up changing it again after further headlines. While they may expect to be on top of things by doing this, their returns most likely will suffer from their emotional and impatient responses.
Nobel Laureate economist Gene Fama once commented: “Your money is like soap. The more you handle it, the less you’ll have.” Wisdom that may benefit your strategy, especially during periods of market volatililty.3
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.
11650 S. State Street, Suite 360
Draper, UT 84020
Citations.
1 – nytimes.com/2019/07/26/your-money/stock-bond-investing.html [7/26/19]
2 – fool.com/investing/best-warren-buffett-quotes.aspx [8/30/19]
3 – suredividend.com/best-investment-quotes/ [12/5/18]
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 MarketingLibrary, Inc., for Mark Lund, Mark is known as a Wealth Advisor, The 401k Advisor, Investor Coach, Financial Advisor, 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 and retirement planning for individuals and 401k consulting for small businesses. Mark’s newsletter is called The Fiduciary Report. Cities served in Utah are: Salt Lake County, Park City, Salt Lake City, Murray, West Jordan, Sandy, Draper, South Jordan Utah, Provo, Orem, Lehi, Highland, Alpine, American Fork, and Utah County.
