Predicting how the market will behave based on past events is inadvisable – even more so, impossible. But many online investment advisory platform promise just that. In some instances, online investment platforms have taken on the decision of barring patrons from making sells or trades on their accounts during moments of high instability. At Starlight Portfolios, we don’t take control of your account, outside of the management of your investments. There will be no time in which you, as the owner of your portfolio, wouldn’t have free access to your investments, unless the exchanges prohibit trading.
With this in mind, as an investor your reaction to events – social, political, economic – can have a greater impact on your portfolio’s performance than your chosen investments or realized return. As the graph below shows, the average investor’s performance doesn’t even keep up with the inflation rate.
Over the 30-year period, investment returns, including inflation outpaced the average investor’s return. The largest contributor to the average investor’s result is the effect emotional investing has on investment return. Fighting the instinct to flee a declining market or investment is perhaps counter-intuitive, but the decision to stay in the market might be a better choice.
Maintaining perspective while the stock market experiences peaks and valleys, can be emotionally difficult, but financially worth it, in the long run. Exiting the market with the goal to minimize losses can lead to missing out on gains once the stocks recover. Even more so, attempting to “time” the market is reckless investor behavior as you miss the full benefit of market recoveries when you don’t return to the market at the right time.
Don’t let market fluctuations effect your investor confidence. Letting your emotions guide your investments decisions can lead you to make the wrong move at the wrong time. Your best course of action during times of decline is to maintain a long-term perspective.
Remember, the market will always recover from a crisis. As Warren Buffett stated: “Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.” Currently, the market has hit an all-time record of 20,000. Do not be discouraged by current events or crises, maintain your investment perspective.