Stocks are up modestly this year, and they remain near all-time highs. It has been more than three years since the S&P 500 has declined 10% or more from its highs, and sooner or later, we’ll see a correction. This presents a great time to review some fundamental investing truths we’ve learned over the years.
1. Investing is less about knowing the markets than knowing yourself.
Success has less to do with your finance skills and more to do with your ability to control your emotions during times of market booms and busts. The fact is – markets fluctuate. They don’t go up permanently, and they don’t go down permanently either. The single most important determinant of investing success isn’t returns – it’s behavior. After all, 100% of past market declines have resulted in markets rebounding to new highs. We just don’t know when or how long it takes.
2. For peace of mind, separate what you can control from what you can’t.
You can’t control what markets do, or when interest rates rise. You can control how much risk you take, how much you pay for advice, and (to a degree) how you manage taxes on your investments. Once you’ve controlled what you can, relax.
3. If you check your investment accounts once a day and your blood pressure once a year, you’ve got it backwards.
Successful investing requires patience. Watching your long-term portfolio for daily blips is like walking up a steep hill while playing with a yo-yo – and focusing on the yo-yo instead of the hill.
4. “The only people who shouldn’t diversify are those who are right 100% of the time.”
This wonderful quote by famous investor Sir John Templeton says a mouthful. You are only diversified if some of your investments are performing worse than others.
5. When it comes to the markets, politics, and the economy, there’s no such thing as “normal”.
Things are constantly in a state of flux. Sometimes, markets fluctuate more violently in the short term than we’d like. It’s a fact of life. So next time we see a market correction, remember this: All past market corrections have been seen as opportunities; all future market corrections are seen as risks. If you can see the silliness in this, you’re way ahead of most investors.
Focusing on long term goals, diversifying well, and being patient has helped countless investors achieve their objectives; while behaving fearfully or greedily, chasing fads, or speculating has ruined countless others. In today’s environment, doesn’t the former sound better than the latter?
If you’re ready to have a trusted financial advisor help you to make smart decisions and avoid costly investing mistakes, give First Coast Wealth Advisors a call today or fill out this form to schedule your financial check-up.