There’s an important reminder for investors to keep in mind when the markets are volatile
When the markets take a turn, there are three types of individuals:
· Those that don’t worry about market downturns and know that things will eventually pass. This group goes along with their lives like normal and isn’t worried about market movements.
· Those that are opportunistic and see the dip in the market as an opportunity to buy. When the market is down, they take advantage of the downturn and “buy the dip” to take advantage of tumultuous times.
· Those that get nervous during market swings and see their accounts drop and think the worst. This group has the potential to let their fear influence their behavior, and they could potentially make poor investment decisions based upon what the market is doing.
Whichever group you fall into, it’s natural to be concerned if the market is trending downward while retirement is looming closer and closer. However, there is a saying in the investment community that goes something like this: “All successful lifetime investing is goal-focused and planning-driven, while all failed lifetime investing is market-focused and current events-driven. From this we can tell that every really successful investor was acting continuously on a plan and every failed investor was reacting continuously to events.”
Successful Investing
What makes a successful investor? In the above quote, a successful investor is described as someone acting continuously on a plan, and as investing that is goal-focused and planning-driven. Successful investors don’t let their emotions get in the way of their investments, particularly when the market is volatile. They create a financial foundation and a financial plan that adheres to that foundation, often with the help of a qualified financial planner. These successful investors then spend their entire lives working on this plan and adjusting it as they go, without making snap decisions based on how the market is. What every truly successful investor really does isn’t a secret – they’re continually acting on a well-crafted plan.
Failed Investing
Failed investing isn’t a secret either. If successful investing is following a plan, and focusing on goals, then it stands to reason that failed investing is based on snap decisions that relate to market changes and current events. This might sound counter-intuitive, because don’t investors really focus on the market and make changes based on current events? Yes, and no. Yes – investment managers do use market fluctuations to adjust their assets in hopes to hedge toward a more opportunistic holding. However, they don’t let the market and media noise influence their direction because it can cause significant errors. An example of this was in March 2020 when COVID shut down the world, and just a month later we had a market rebound – and then even further into the future we went on a two-year tear of hitting market highs. The investors that managed that time frame the best were those that didn’t let the news and fear drive their decisions. Those that let the media get into their heads and impact their decision making may still be licking their wounds today.
Investments Work, Investors Don’t
There’s an old adage that investment’s work, and investors don’t – and it’s true. It means that you need to stay out of your own way when it comes to investing. The best way to be a successful investor, especially at a time like now when the market seems tumultuous, is to remember that you’re investing for the long term and that markets generally recover over time. Having someone help you get outside of your own head, like a financial advisor, is a good place to start as well, because it may help to have another person there to keep you focused on your plan.