For investors, it can be easy to feel overwhelmed by the relentless stream of news about markets.
Being bombarded with data and headlines presented as impactful to your financial well-being can evoke strong emotional responses from even the most experienced investors. Headlines from the ”lost decade” can help illustrate several periods that may have led investors to question their approach:
- May 1999: Dow Jones Industrial Average Closes Above 11,000 for the First Time
- March 2000: Nasdaq Stock Exchange Index Reaches an All-Time High of 5,048
- April 2000: In Less Than a Month, Nearly a Trillion Dollars of Stock Value Evaporates
- October 2002: Nasdaq Hits a Bear-Market Low of 1,114
- September 2005: Home Prices Post Record Gains
- September 2008: Lehman Files for Bankruptcy, Merrill Is Sold
While these events are behind us, they still serve as an important reminder. For many, feelings of happiness or despair can accompany headlines like these. We should remember that markets can be volatile and recognize that, at the moment, doing nothing may feel paralyzing.
Throughout these ups and downs, if you had invested $10,000 in US stocks in May 1999 and stayed invested, that investment would be worth approximately $28,000 today (see chart below).
When faced with noise, it’s easy to lose sight of the potential long-term benefits of staying invested. While no one has a crystal ball, adopting a long-term perspective can help change how you view market volatility and help you look beyond the headlines.
Part of being able to avoid giving in to emotion during periods of uncertainty is having an appropriate asset allocation aligned with your willingness and ability to bear risks. It also helps to remember that if returns were guaranteed, you would not expect to earn a premium on your invested capital!
As with many aspects of life, everyone can benefit from some help in reaching their goals. The best athletes in the world work closely with a coach to increase their odds of winning. Why? They understand that the wisdom of an experienced professional, combined with the discipline to forge ahead during challenging times, can keep them on the right track.
The right financial advisor can play this vital role for most investors. A recent survey conducted by Dimensional Fund Advisors found that investors place a high value on the sense of security they receive from their relationship with a financial advisor.
In conclusion, there are definite benefits to establishing a relationship with a fiduciary financial advisor who can provide the added expertise, perspective, and encouragement to keep you focused on your destination and in your seat when it matters most. Your future self will thank you.
Michael Tanney; May 31, 2018
. For the US stock market, this is generally understood as the period inclusive of 1999 – 2009.
Michael Ramirez, cartoon, Investor’s Business Daily, April 7, 2008, www.investors.com/editorial/cartoon.asp.