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By Chad Carlson
Do these news headlines look familiar?
"For Gasoline, Little Is Certain But High Prices"
"Interest Rate Fears Weigh Down Stocks"
"US Dollar Declines Due to Political, Economic Jitters"
"Companies Go Abroad, And Jobs Go Along"
There will always be reasons not to invest. That's why investors who want to reach their long-term goals shouldn't change their plans or react to short-term headlines. While it might be tempting to sit out the bad times and wait for a brighter outlook, the truth is that there will always be another gloomy headline. If you think about it, the media thrives on bad news.
Take another look at the headlines above. Based on current events, you might think that these headlines were published recently. That is not the case. Each of these headlines were written in 1974 (Sources: Los Angeles Times, The New York Times, The Wall Street Journal).
Investor's perceptions can be distorted by the news media, leading to inaction. or worse, the wrong action. In the 70 years since the end of the Great Depression, U.S. investors have survived 5 wars involving U.S. troops, 17 presidential elections, and 27 periods of rising interest rates. But if you have a long-term plan and faith in the organization managing your investments, these occurrences are far less likely to distract you.
One of the most successful investors of all time, Warren Buffett, Chairman of Berkshire Hathaway, offered his long-term perspective on market fluctuations in his company's 1997 annual report:
"If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period? Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall. This reaction makes no sense. Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers would much prefer sinking prices."
Focusing on short-term market trends can be very costly. It's almost impossible to pick a market bottom or top and those who try are frequently disappointed. While the stock market was down from 2000 to 2002, a historical look at bear markets reveals that more than three consecutive down years have been rare, and they were always followed by upswings. You may not know it, but the Dow Jones Industrial Average closed on the first day of 1974 at 850 and on the first day of 2005, the Dow stood at 10,783.
It's important for investors to take a step-back and view market performance from a rational and historical perspective. What will emerge are patterns that underscore and reinforce the wisdom of patience. Regardless of the year or the cycle, basic investment principles stay the same. A long-term focus on your portfolio - not short term-market swings or cycles - and staying with your plan will maximize the likelihood of achieving your financial goals. Admittedly, that's not always easy to practice.
As we enter the last few months of the year, now is a great time to think about the asset allocation in your investment portfolios and retirement plans. Revisit your targeted mix of stocks, bonds, and other investments in your portfolio and make any needed adjustments in keeping with any changes in your income, lifestyle or goals. If you don't have a plan, you should. Regardless of whether you choose to seek out professional assistance with your investments, invest your time to establish a plan that is right for you and your family.
Chad Carlson is a Financial Advisor with Delta Trust Investments, Inc. For more information, contact Chad at (501) 975-4010 or by email at ccarlson@delta-trust.com. Delta Trust does not offer tax or legal advice and recommends that you consult your tax or legal advisor.
