Everyone knows that investors don’t like uncertainty, but experience tells us that markets will eventually climb those walls of worry and emerge more prosperous on the other side.
There has been a lot of talk about the stock market this year for obvious reasons. Much of it is coming from market pundits citing a basketful of economic and social concerns, such as COVID-19, the recession, the election, and government debt. The stock market is too high and interest rates are too low, they say.
Some investors have responded by pulling out of the market, and that is tragic to see because liquidating stock in a downturn could turn a temporary drop in value into a realized loss.
For those who stayed in the market this year, it took courage to watch indexes plummet when COVID-19 began its sweep around the world. But they were rewarded.
Nonetheless, many investors are easily scared out of their stock holdings, waiting until the coast is clear before reentering the market. By then, however, the best rates of return are long gone.
Let’s face it, investing is not easy. There are economic and emotional challenges.
Market drops, corrections, consolidations, retracements, whatever you want to call them, will happen periodically and each one will test an investor’s resolve. Those who have faith in their investment approach and remain disciplined will eventually capitalize. Those who run for the exits will not.
Markets can move up and down on the emotions of investors. Many people struggle to keep their feelings in check, allowing their emotions to take over in response to sudden developments in an otherwise favorable investment environment.
Through it all, it is better to have a poor strategy and the discipline to stick to it, than it is to have a great strategy, but no resolve to stay with it when times get tough.
Of course, investment plans are only useful for so long, so experienced investors conduct regular investment reviews to ensure plans are still up to date. Registered Investment Advisors are ideal to help with this process because of their training, experience, and commitment to act in their clients’ best interest.
By developing an investment plan that fits their goals, investors can be confident the next time the investment world feels like it’s falling apart. They’ll have the plan they need to keep their financial house intact.
George Cohlmia is a financial advisor with Oklahoma City-based Full Sail Capital.