For better or for worse. In sickness and in health. Til death do us part.
These are phrases we commonly hear at weddings because it is an acknowledgement that marriage is tough but worth it. A successful marriage requires commitment even through the painful moments that are sure to come. Maybe they are phrases we should apply to our investment portfolios as well.
One of the most common (and devastating) mistakes we see investors make is giving up on their investment portfolio when things get tough. When the headlines get ugly and the markets start diving and it becomes painful to own stocks....all too often we see individuals panic and throw in the towel. They capitulate. They sell while they are down. They cannot stand the pain and they divorce their portfolio and their long-term investment strategy.
But what has always (yes, always) happened next?
The world doesn't end. The economy doesn't turn to dust. The stock market doesn't implode. And before you know it, the stock market is rallying back towards new highs. Meanwhile, those who couldn't handle the "or for worse" period of their relationship with their investments are sitting on the sideline watching the market they gave up on run off without them and wishing they hadn't given up so easily.
A big part of this unfortunate decision making pattern is simple human behavior. When something hurts, we stop. Seeing your portfolio of investments lose value hurts, so we stop. But investing is a game where time almost always heals the wounds. The longer we stay committed, the higher the potential likelihood of a positive result. But what is the hardest thing to give your portfolio when you're losing money? Time. It's hard to exercise patience when the world around you is screaming at you to do something before it's too late!
If you had turned on CNBC at any point during the February/March market crash of this year, it was a never ending parade of "economists" or "analysts" coming on to scare the hell out of you. You had folks coming on and telling you to "sell this, buy that, short those" over and over every single day. They were talking to you as if investing were speed dating. Get a cup of coffee with this stock. Take this one to dinner. Have a one night stand with that one.
This is...how do I put this mildly....TERRIBLE advice for the majority of investors.
You had hedge fund managers coming on using inflammatory language like "hell is coming" and exacerbating an already panicked situation. It served no constructive purpose other than to create fear. Networks love fear because it attracts our attention. If you watched those programs it would have been extremely difficult to stay committed to your long term investments. This is why investing can be so difficult. But it's actually quite simple.
It's simple in that simply buying into quality stocks or investment funds over and over and keeping them for a long time has traditionally been a successful strategy. You don't have to time the market perfectly. You don't have to avoid every crash. You don't have to invest at the absolute bottom and sell at the absolute top. More than anything, you just need to start investing, keep investing, and stay invested. You need to commit to your investment strategy and stay loyal to it. You don't give up or change your plans when the market gets tough and sticking to your strategy hurts. You stick with it...for better or for worse....in sickness and in health. You treat your investment strategy like it is a marriage and understand that is going to be really tough sometimes. It's going to hurt like hell sometimes. But if you pick the right investment strategy...like picking the right partner in life...that pain will be temporary and totally worth it in the long run.
Start investing. Keep investing. Stay invested.
Visit us at www.IndyWealthAdvisors.com to take a retirement assessment and determine the amount of risk you are truly comfortable taking with your investments. From there, we can build an financial plan and an investment strategy that you can commit to for the long term.
This material is for educational purposes only and is not intended to be a forecast of future events or a guarantee of future results. The information presented does not constitute a solicitation for the purchase or sale of any security and is not a recommendation of any kind. Please consult your financial advisor before making financial decisions. Past performance is not a guarantee of future results. Dollar cost averaging does not ensure a profit nor guarantee against loss. Investors should consider their financial ability to continue their purchases through periods of low price levels. Investing involves risk, including the potential loss of principal. (06/20)