For investors, it can be easy to feel overwhelmed by the relentless stream of news about markets.
Allowing emotions or opinions about short-term market conditions to impact long-term investment goals can lead to disappointing results. By filtering out the noise to help manage your emotions and biases, you can maintain perspective, remain calm, and look beyond the concerns of today.
AVOID MAKING HEADLINES ACTIONABLE
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”[1] can help illustrate several periods that may have led market participants 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 now a decade or more behind us, they can still serve as an important reminder for investors today. For many, feelings of elation or despair can accompany headlines like these. We should remember that markets can be volatile and recognize that, in the moment, doing nothing may feel paralyzing. Throughout these ups and downs, however, if one had hypothetically invested $10,000 in US stocks in May 1999 and stayed invested, that investment would be worth approximately $28,000 today.[2]
Hypothetical Growth of Wealth in the S&P 500 Index, May 1999–March 2018
THE VALUE OF A TRUSTED ADVISOR
Part of being able to avoid giving in to emotion during periods of uncertainty is having an appropriate asset allocation that is aligned with an investor’s willingness and ability to bear risk. It also helps to remember that if returns were guaranteed, you would not expect to earn a premium. Creating a portfolio investors are comfortable with, understanding that uncertainty is a part of investing, and sticking to a plan may ultimately lead to a better investment experience.
Individual investors with the emotional stamina to implement an intelligent portfolio and remain disciplined may not need an advisor. However, some investors may benefit from a bit of help in reaching their goals. A investment advisor can provide the expertise, perspective, and encouragement to keep you focused on your destination and in your seat when it matters most. A recent survey conducted by Dimensional Fund Advisors found that, along with progress towards their goals, investors place a high value on the sense of security they receive from their relationship with a investment advisor.
How Do You Primarily Measure the Value Received from Your Advisor?
Having a strong relationship with an advisor can help you be better prepared to live your life through the ups and downs of the market. That’s the value of discipline, perspective, and calm that the right investment advisor can provide.
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For the US stock market, this is generally understood as the period inclusive of 1999 – 2009. ↑
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As measured by the S&P 500 Index, May 1999–March 2018. A hypothetical dollar invested on May 1, 1999, and tracking the S&P 500 Index, would have grown to $2.84 on March 31, 2018. However, performance of a hypothetical investment does not reflect transaction costs, taxes, or returns that any investor actually attained and may not reflect the true costs, including management fees, of an actual portfolio. Changes in any assumption may have a material impact on the hypothetical returns presented. It is not possible to invest directly in an index. ↑
