No one likes being taken by surprise where investing is concerned, so it’s natural to ask what’s next. The question I hear a lot is, “How long will the current ‘up’ market last?” Although it’s had ups and downs, we’re eight years into an unprecedented bull market.
The fire behind this market has been anything but routine—fueled by years of monetary stimulus and, since last fall, anticipation of business-friendly policies from President Trump’s administration. While some investors are eager for more of the same, others are concerned the party will soon be over.
The Hazards of Greed and Fear
Many investors want to believe that past or current performance is indicative of future results, despite warnings to the contrary. With the last eight years in mind, beware of the perception that it’s always going to go this way, ignoring the occurrence of normal volatility. I often see a tendency in investors to view every portfolio high as the new high watermark. Then, when their numbers stumble, they pay much more attention and feel that pain much more acutely. To keep performance in context, clients should recall where their accounts started, rather than the most recent zigs or zags.
It’s not uncommon for clients to compare their fund or portfolio performance to that of a friend or neighbor. However, not all investors are alike, so it makes senses that their returns will differ. Variables such as what someone is invested in and when they purchased shares will affect those numbers. While it’s tempting to focus on an asset class that has been on a hot streak over the last year or so, it’s never advisable to chase performance.
I’ve heard from quite a few investors, invested primarily in cash since the 2008 financial crisis, who are anxious about returning to the markets. But they’re not the only ones postponing decisions, waiting for the “right” time. Other examples include those putting off rebalancing their portfolio or holding off on rolling over a 401(k). The fact is, a sound investment decision is based on an investor’s overall plan, which includes time “in” the market, not timing “of” the market.
What’s Next for You as an Investor?
Are we heading for a correction? Only time will tell. Whether the next downturn is a dip or a dive, consider the following investing principles that have helped others.
Match allocations to your goals
Knowing what you’re investing for will help shape your investment plan. Consider how much you need and how soon you’ll need it. Then determine the appropriate mix of stocks, bonds and cash for you.
Buy and hold
Nearly everyone has heard the adage to buy low and sell high. Another simple rule important for long-term investors to follow is to buy and hold—even when emotions attempt to sway you to do otherwise. Jumping in and out of the market has its costs; in fact, research shows that the average stock mutual fund investor achieves only about 50% of returns achieved by the market. The bottom line is, staying in the market over the long haul means you’ll keep your money working for you.
We’re Here for You
If you have questions about your investment plan, we’re here to help. Contact us to be your sounding board or an objective voice to help keep you on track.
The opinions expressed are those of Brent Hoskins and are no guarantee of the future performance of any American Century Investments portfolio. For educational use only. This information is not intended to serve as investment advice.