Focusing on Your Strategy During Turbulent Times.
Provided by Taylor McClish
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 may end up changing it
again after further headlines. While they may expect to be on top of things by
doing this, their returns may 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
Taylor McClish may be reached at (503) 239-3060 or Taylor.McClish@cunamutual.com
Mutual funds
are sold only by prospectus. Please consider the charges, risks, expenses and
investment objectives carefully before investing. A prospectus containing this
and other information about the investment company can be obtained from your
financial professional. Read it carefully before you invest or send money.
This material was prepared by MarketingPro, Inc., and does not
necessarily represent the views of the presenting party, nor their affiliates. This
information has been derived from sources believed to be accurate. Please note
- investing involves risk, and past performance is no guarantee of future
results. 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 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. This is neither a solicitation nor
recommendation to purchase or sell any investment or insurance product or
service, and should not be relied upon as such. All indices are unmanaged and
are not illustrative of any particular investment.
Securities sold, advisory services offered through CUNA Brokerage Services, Inc. (CBSI), member FINRA/SIPC, a registered broker/dealer and investment advisor. CBSI is under contract with the financial institution to make securities available to members. Not NCUA/NCUSIF/FDIC insured, May Lose Value, No Financial Institution Guarantee. Not a deposit of any financial institution. CUNA Brokerage Services, Inc., is a registered broker/dealer in all fifty states of the United States of America.
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]