Tuesday , 22 January 2019

Fear-mongers’ Advice Has Been a Disaster For Portfolios

Some people are screaming that this is just the start of the biggest bull market in the history of theinvestor-fear world but the tin hat crowd has a phrase that is often associated with euphoria, bubbles, and overheated markets…that proclaims “this will end badly.” [That being said,] listening to the advice of fear-mongers has been an absolute disaster for your portfolio returns.

The comments above and below are excerpts from an article by David Fabian (fmdCapital.com) which has been edited ([ ]) and abridged (…) to provide a faster and easier read.

The Skepticism

…Some people think the whole system is rigged.

  • They think the Fed is manipulating the markets.
  • They believe that robots and algorithms have taken over control.
  • They are even skeptical of investment vehicles like exchange-traded funds because they are prone to temporary trading hiccups that are demonized in the media….
  • [Some people think] the only logical choice is to stay on the sidelines – hide out in cash and wait for the apocalypse that will come with global upheaval, hyperinflation, currency devaluations, social unrest, and general chaos. It will end badly they assure us. This time it’s different.

The Reality

…Despite all those assurances of destruction, [however,] something interesting happened this week. Major stock and bond indexes hit new all-time highs. Not only that, many commodity funds have also experienced some of their biggest gains in years. That doesn’t sound like the makings of a broken system to me.

… Investors who have stayed true to a disciplined, diversified, and sensible investment approach are probably seeing their accounts at or very close to the largest balances ever. The tin foil hat crowd? Not so much.

It’s easy to let fear drive your investment decisions. It’s a powerful motivator and you can easily rationalize a lack of exposure in stocks or bonds to protecting your best interests but nothing could be further from the truth. The truth is that listening to the advice of fear-mongers has been an absolute disaster for your portfolio returns. They are right every now and then, just like a broken clock is right. There are bear markets and recessions that come with enigmatic frequency and leave just as suddenly. There is no perfect way to predict those entries and exits. Ultimately, this current period of strength will fade and we will be forced to endure another setback in the markets. That’s OK though. It’s how you prepare and react through those cycles that is most important.

In Summary

“This will end badly” is not a strategy. It’s an opinion. Furthermore, if you haven’t had the fortitude to invest when things are relatively calm and showing meaningful trends, what makes you think you are going to hit the nail on the head if this thing does collapse? It always looks 100x worse on the way down and especially right before the markets turn higher again. That’s the nature of the game and why investing can be so frustrating.

The Plan

I’m not wildly bullish about stocks or bonds at this moment in time, however, I still adhere to a fundamentally sound game plan of holding core positions in both asset classes. That way my opinions don’t get in the way of compounding my client’s wealth.

Having a little cash on the sidelines can be a good strategy. It can allow you the flexibility to add fresh themes or wait for a pullback so that you can put that money to work [BUT] being 100% cash for the last 1-3 years isn’t a strategy. It’s a good way of ensuring you won’t hit your goals for buying a home, retiring, or generating sustainable income from your nest egg…

There is no easy or guaranteed road to success…,however, there are time-tested principles that will serve you well with enough patience and foresight to let them work. The first step is realizing what you have been doing may not be in your best interests and taking a proactive approach to changing that thought process.

Disclosure: The above article has been edited ([ ]) and abridged (…) by the editorial team at munKNEE.com (Your Key to Making Money!) to provide a fast and easy read.
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