Shopping in our everyday lives is very similar to investing in our portfolios and staying true to investment strategies during market volatility.
Andrea J. Zoeller, CFP®
Oct. 25th, 2017
You walk into your favorite store to see that the purse you have had your eyes on for the last few months is marked up 30%, making it way more expensive since the last time you saw it. You finally decide to bite the bullet and buy it since you don’t think there’s a chance it will go on sale now. You get home to show your husband your new purchase that you have been waiting so long to finally make and you discover that the grill he bought last week is missing. After asking where it has gone he tells you that it went on sale this week so he decided to take it back and get in-store credit for 30% less than what he paid for it last week. Let’s take a minute to see where I’m going with this – are either of these scenarios anything you would ever do? NO WAY! I don’t know about you but I want to buy that purse when it’s on sale, not after the price went up.
If we refer back to the above scenarios, buying the purse after it has been marked up is much like waiting to buy into a stock after seeing how well it has performed. Likewise, returning the grill after the price has decreased is much like selling out of a stock after the price has dropped. These seem like silly scenarios in our day to day lives however, many investors do these very things when it comes to their portfolios.
Many times, investors will wait to see what stocks have been doing well before buying into them and consequently end up buying in at the highs of the market. Likewise, during times of market volatility, investors tend to panic after losing a percentage of their portfolio and sell out at the lows of the market. Both scenarios can really hinder a portfolio’s performance and keep an investor from getting to their end goals – whether that be retirement, purchasing a second home, or leaving a legacy for their children. An easy way to try to avoid buying high and selling low is through dollar cost averaging where an investor can put a set dollar amount into the portfolio regularly.
The moral of this story is that staying true to your investment strategy through the good times and bad will benefit you, as the investor, in the long run. Always try to remember that the goals you set aside are long-term goals and as long as those goals are still intact, trying to time the market is only going to do more harm than good. Also, proper asset allocation and rebalancing of your portfolio will aid in protecting the portfolio during times of market volatility.
Although it is always easier said than done, next time we see some volatility in the markets, remember to hang on for the ride because you are invested for the long term. Additionally, try to think of it as a buying opportunity just like you would if you walked into your favorite store and saw that purse on sale…or grill.
Please contact our office if you have any questions regarding this topic.
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