Investors: Short-Term Memory Loss
by Shawn C. Everett
Fickle: by definition, fickle is changing frequently, especially about one’s loyalty or interests.
A fickle investor is one that is inconstant, unstable or volatile when It comes to the markets. How soon we forget that we have enjoyed a bull market since mid-2009. It seems that there has been some short-term memory loss that the market can actually be down for a week, month, or even for the year,
In the last month we have seen some tough days in the markets. I’ve had a couple of frightened clients call and ask if the world is coming to an end. Heck, if you listen to CNBC or the nightly news you may think so!
Let me point out a few things:
- Stick to the plan
Lord Abbett Funds just released a statement on October 15, 2018 stating, “In our view, a market sell-off in a fundamentally strong economic environment should not by itself be seen as a reason to abandon sound long-term strategies that offer investment opportunity.” I couldn’t agree more.
- Don’t be emotional.
A gut reaction to losing money is to sell. An emotional investor will sell low and buy high. Guess what, you will lose money every time.
In fact, in a recent conversation with a friend, they asked, “The market is down, shouldn’t we sell and wait for it to come back before we buy back in?” Really??
If I went to look at a house that I loved but it’s $400k list price was too high but the next month the price goes down to $350k, would I be more apt to buy it? How is the market any different?
Volatility can be a lot to handle. You can measure the volatility in the markets by tracking the VIX index. In year 2008 when the S&P was down 37% the VIX was at 80, compared to now the S&P is up 4.28% year to date and the VIX is at 21. Money can be lost or made in any year regardless of the measure of volatility.
- The real difference – Passive vs. Active Portfolios
When times get tough in life your passivity can leave you exposed, as is with sitting in passive index funds once there is turbulence in the markets. These passive investors who have had the luxury of good returns over the past few years are now starting to lose sleep over huge triple-digit down days in the indexes. That is why in most client situations we take an active approach to portfolio management. The hope of an active management approach is to ride the market as it rises yet avoid some of the downside risk when falling. I can’t imagine many passive index investors would want to relive 2008 when the DJIA was down 34%. What a nightmare!
- The stock market is not for everybody.
If you are losing sleep at night or are fearful to look at your latest investment statement, maybe it is time for a change. If that sounds like you, give us a call for a second opinion. We never charge you for our time and remember talk costs nothing.
If you have an advisor that is passive or if you are planning on your own and you are no longer confident because of the turbulence turn to a knowledgeable professional for guidance.
Investors cannot invest directly in indexes. The performance of any index is not indicative of the performance of any investment and does not take into account the effects of inflation and the fees and expenses associated with investing.
The CBOE Volatility Index, known by its ticker symbol VIX, is a popular measure of the stock market’s expectation of volatility implied by the S&P 500 index options, calculated and published by the Chicago Board Options Exchange (CBOE).
The Standard & Poor’s 500, often abbreviated as the S&P 500, or just the S&P, is an American stock market index based on the market capitalizations of 500 large companies having common stock listed in the NYSE or NASDAQ.
The Dow Joes Industrial Average (DJIA) is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange (NYSE) and the NASDAQ.
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