I wanted to take a brief moment to remind our readers of a fundamental investing truth that tends to get overlooked, forgotten, or deliberately disregarded during times of market euphoria.
Think about this. If you had a million dollars at the beginning of 2016 to invest and I said that over the year that there would be a Supreme Court vacancy, the Cubs would win the World Series, interest rates would rise, and Donald Trump would become president – would you invest that million dollars in the market? I would bet that many people would not. They would guess that 2016 would be a dismal year for market returns. Yet, in 2016 the Dow returns 13.4% and the S&P 500 returned 9.5%!
With all of that uncertainty and the improbable happening, the market still had a great year of returns. Those who stayed invested were rewarded. Those who sold (say, in early November) missed out.
Now, allow me to rain on your parade.
Expect to lose. The truth we have to remember is that with all of the good years of returns will come the years of losses. It can be easy to get caught up in the excitement and euphoria of a booming and rising market. Real discipline comes when markets go down. Investors must remember their goals, their time horizon and most importantly – that their portfolio returns are a functions of good asset allocation, diversification and time.
I would argue that anyone can stay invested and adhere to their goals when markets are rising. It becomes extremely important to stick to your plan and just as important, keep investing, when markets are falling during times of abysmal performance.
This is where a qualified, professional fiduciary planner can help. He or she can help with the behavioral aspect of your plan and provide objective advice and reasoning when you may want to act irrational. For many investors, this is worth above and beyond the fee they pay to the advisor (as it should be).
So when markets are high and your portfolio looks amazing it’s ok to enjoy it. Just remember to expect that there will be lean times as well. If you expect rain, you’re better prepared to weather the storm.
Sterling Raskie, MSFS, CFP®, ChFC®
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Very good point. The good times are the time to start planning for an inevitable downturn. It’s the perfect time to make sure you’re diversified and have more passive income (ie. real estate, side gigs, etc.) just in case.