Many studies show that over and over again investors tend to invest when the market has been climbing for a while and tend to sell when it has been declining. And they do so to their detriment, by and large.
When it comes to investing, we generally are ruled by greed and fear. Greed kicks in when the market has been climbing for a while making new highs and you are not in it (think mid-to-late 1990s). We are afraid to miss the boat. Fear kicks in when the market (and your investments) take a beating and all the news is dreary. The urge to pull out of the market becomes overwhelming for many (think early 2009).
Warren Buffet’s maxim of “I am fearful when everyone is greedy and greedy when everyone is fearful” is ignored by most. Think of March 9, 2009. The Standard & Poor’s (S&P) 500 from its peak in 2007 to that day had dropped 57%. Gloom and doom was everywhere. No one wanted to buy; everyone had either already sold or wanted to sell NOW! Yet, this was the low of this cycle and three years later the S&P 500 is up 102% (115% including dividends).
What is an investor to do?
For the disciplined investor who can ignore that emotional pull, having a good strategy with good investments and sticking with it will probably hold them in good stead. For everyone else, this is where the value of a trusted wealth manager or financial advisor comes in. Contrary to popular belief, the most valuable advice I give is not which investment to buy; rather, it is in keeping you from undermining your plan. Trusted advisors help rein in your emotions.
The opinions in this material are for general information only and are not intended to provide specific advice or recommendation for any individual. Past performance is no guarantee of future results. All indices are unmanaged and may not be invested into directly.