The bull market is over 9 years old. At some point, no one knows when or by how much, the US and World stock markets will fall. When that time comes, remember:
Don’t just do something, stand there! For many, the natural instinct is to do something when the market retreats. We read more market news, we pay closer attention to the daily results in the exchanges and ultimately we feel the need to take action in our portfolios – often to our detriment. Find the right long-term asset allocation, invest in low cost index funds and actively manage your taxes. That is the right strategy in up and down markets.
Stick with Indexes. Active managers will no doubt use a market downturn to prey upon the emotions of frustrated investors looking to “minimize downside” with “tactical shifts.” The more the market is down, the louder active managers will beat their drum. And the more tempted investors will be to give in. Don’t fall for these marketing ploys. Research suggests that over long periods of time, expensive, active managers will lose to their low cost, tax efficient index counterparts.
Better days are ahead. Over time, stock returns will beat bond returns, and bond returns will beat cash returns. The most successful investors are those that develop the right plan and stick with it in good times and bad. The investors who are most hurt by market retreats are those that overreact.
Fiduciary, planning focused, advisors are best positioned to help clients when the inevitable market pull back happens. Find an advisor today.