Bad Strategies with Good Outcomes: Investing in 2017Submitted by InFocus Financial Advisors, Inc. on November 28th, 2017
Finding just the right portfolio to help you accomplish your goals can be a daunting task. Fortunately, in 2017 there have been relatively few asset classes in which have not had positive performance. Just about any strategy employed has yielded positive results. If you watch the financial news, you may hear terms like “goldilocks” and “optimal” when describing the economic environment. While there is some validity to that term when referring to the current business environment, the purpose of this article is a bit different. When we find ourselves in such an environment, strategies that might not be optimal for the long-run can all the sudden appear to be suitable.
I have written before about the dangers of human nature. The inherent behavioral biases humans are blessed with assisting them in making investment decisions can unfortunately have some catastrophic results. After watching 9 years of positive stock market gains, only to be capped off with the potentially most historic year in market history you can rest assured the way in which we view our portfolios has probably changed. Never in history has the stock market had a year in which there has not been at least one negative month. That has been the story of 2017, thus far. Through the end of October, every month has finished in the black (or green) and we are yet to experience a greater than 3% decline! So, to say it is historic would be an understatement. We are in un-chartered waters.
The danger with a historic market such as the one we are in, is that from January 1 until now there is a large portion of the investing population that has felt a shift in risk-tolerance. Seeing the daily price appreciation on the news, hearing people say things like “Goldilocks”, “Trump-trade” and other wonderful one-liners give us the feeling of being left out unless a significant portion of our funds are fully invested in the markets. That may continue to work out if the market continues to go up. It’s not going to be so great when the markets inevitably decide to go back down. The unfortunate truth of the matter is, until we have some sort of market correction a potentially flawed process and fundamental mistake in investing will potentially continue to yield good results. Allowing such an environment to temporarily put you at ease, or make you more comfortable being more aggressive can potentially be a significant mistake. Those who are at or near retirement especially, probably cannot handle significant volatility from a financial standpoint and certainly from an emotional perspective. A severe correction or downturn will likely cause many people, especially retirees to move down the risk spectrum, and sell out of investments at precisely the wrong moment.
While I continue to root for 2017 to be a historic performance year, I must mention that it is worthwhile examining your risk profile as we draw closer to year end. If markets experienced a significant drawdown over the next several months, how will your portfolio be affected? Maybe even more importantly, how will you be affected? Does your current positioning align with your emotional wherewithal in turbulent times? While it is impossible to predict what the future will hold, you can help yourself by holding on to a strategy that matches you, not one that has looked great in the most unprecedented market rally ever.
The views are those of Robert Jeter and should not be construed as specific investment advise. Past performance is not a guarantee of future results.
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