OMG what should I do with my investments? This is the typical reaction to a short term down swing in the market. Many of us forget to keep ourselves focused on the long term. We forget that the stock market does go down. It is the price we must pay for the great returns we realize, long term.
Please remember a fact from Frederick C Taylor. From 1926 thru 2012 the Standard & Poors 500 has earned a 9.75% average annual return. There have been 22,040 trading days during this time. Only 52% of those days were up days or 11,461 days. That means there were 10,579 down days. The down days are admittedly more painful, but necessary to earn the great market return.
It is also important to remember that
“There ain’t no such thing as a free lunch“
(alternatively, “There’s no such thing as a free lunch” or other variants) is a popular adage communicating the idea that it is impossible to get something for nothing.
We read or listen to the financial media telling us why our recent downturn is occurring. Could it be because the Federal Reserve has suggested it will slow down its bond buying? Or could it be that China has shown signs of an economic slowdown? I’m not sure what the answer really is. Perhaps, it’s just the market looking for a reason to correct. Again I do not know the answer.
I do know that downturns are inevitable. They happen.
Dealing with these downturns is part of the reason the long term returns are so attractive.
For long term investors these downturns mean nothing. Anyone who tells you they can predict the market turns are gambling and speculating with your money not investing. In fact you are gambling and speculating with your money if you:
- Pick stocks
- Market time
- Track record invest.
During a downturn in the markets if you become overwhelming uncomfortable. You should talk with your investor coach about reducing the level of risk in your portfolio. If the both of you decide a reduction in risk would be right for you then do it. However, do not expect to increase the risk level when market conditions improve. This would be market timing and therefore imprudent.
Those of you that are already clients know that you are globally diversified with the right amount of risk for YOU. Each of you know the three simple rules of investing:
- Own equities and fixed income.
- Globally diversify
Keep in mind no one can predict the future with any degree of consistency.
My suggestion to all of you is to relax and enjoy the summer weather. Stop watching all the ‘bad’ news. Do not allow the Wall Street bullies to make you do something you will regret long term.
As I have said in the past “Short term gain ….Long term pain’. Stay focused on the long term and with the help of an investor coach your financial goals are attainable.