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Do-Nothing Investing

Mike Earl, CFP®, CPWA®

My dad texted the following to me earlier this week:

I think what he’s asking is whether Monday’s selloff is a harbinger of things to come. Or maybe he wants me to reassure him that things are going to be okay. Or maybe it’s just something to talk about.

[note: he did first text to see if we had any baby news to report, as my wife is due later this week]

Am I concerned about rising inflation, absurdly low interest rates, money-printing on steroids across the developed world, a US political agenda favoring higher tax rates, relatively high stock valuations (compared to the past), and increasing political polarization in the US? Yes, I am concerned about those things.

But those things don’t have anything to do with my family’s financial goals, so I won’t adjust my investment portfolio based on those concerns.

And I don’t know whether this 4% correction will slide into a 10% correction, a 15% correction, a 20% decline for a bear market, or worse.

No one likes to see a lot of red when they check the stock market on a given day:

But what if the news sources defaulted to reporting 10-year returns? Instead of daily returns (where you will see red 46% of the time), you would see green most days and remember how much higher the market (and your portfolio) is today vs. 10 years ago.

Our bodies are wired to react more negatively to losses than gains. Research has shown that a 2% decline feels twice as bad as a 2% gain.

Part of what drives my dad to look at the markets is his desire to grow in his knowledge and increase his investing acumen. That’s a noble goal. But the danger of checking the market more often means you are more likely to see red.

If you only checked your portfolio once a year, the result would be growth in your portfolio nearly 80% of the time (based on past performance): 

Source: Peter Lazaroff

We are here to help our clients take the long view. That 20-year picture looks bright. But to benefit from those stellar long-term returns, you need to invest consistently (i.e. keep investing during good times and bad) and stay the course (not change strategies when the chips are down).

Cover photo credit: Jeffrey Keenan at Unsplash