2020 has been one of the most challenging and confusing years on record for investors. The swiftest market decline in history was followed by an abrupt, about-face recovery. This turbulent cycle has been emotionally taxing for investors new and old alike. While it would be easy to succumb to panic as markets declined, or give in to speculation as markets climbed to new highs, our advice has remained consistent and unwavering: don’t let your emotions dictate your investments.
AN EVEN-KEELED APPROACH
We’ve long professed that short-term market movements, whether positive or negative, have no place in dictating an overall investment strategy. Wealth creation and preservation requires a commitment to disconnecting your short-term emotions from your long-term investment dollars. More often than not, emotions will peak or plummet at points of extremes and lead to an unfavorable decision making process.
As markets decline, and fear and panic sets in, investors will be tempted to deviate from their well thought out investment plan and favor selling stocks for the safety and predictability of cash. Investors do this not because they believe it is the prudent and wise approach to investing, but because they panic and let their emotions take over.
As markets recover and inevitably begin to reach new highs, euphoria sets in. Investors may once again be tempted to deviate from their well thought out investment plan, but this time in favor of a more aggressive investment approach involving speculating on “hot” stocks or day trading.
2020 has been unique because both instances have been on display. No matter the scenario, deviating from your diversified and well thought out investment approach usually results in an expensive lesson learned.
The US stock market over the past 12 months.COURAGE TO STAY THE COURSE
- A balanced, diversified portfolio is built to weather tough markets.
- Markets tend to continually “climb a wall of worry.” There will always be something to be concerned about. COVID-19, a slow economic recovery, income inequality, and an increasing global debt are a few of today’s concerns.
- No two market downturns are ever alike and future downturns will look different than prior ones. This shouldn’t lead us to think that markets will be incapable of recovery when they inevitably decline again.
- Your resiliency to market declines is precisely what provides you with a return on your invested money.
We hope that you and your family are healthy and staying safe. As always, thank you for your continued trust and confidence.
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