When faced with short-term noise, it is easy to lose sight of the potential long-term benefits of simply staying invested.
For investors planning their goals, it can be easy to feel overwhelmed by the relentless stream of news about markets. Being bombarded with data and headlines presented as impactful to your financial well-being can evoke strong emotional responses from even the most experienced investors. Headlines from the “lost decade”1 can help illustrate several periods that may have led market participants to question their approach.
- May 1999: Dow Jones Industrial Average Closes Above 11,000 for the First Time
- March 2000: Nasdaq Stock Exchange Index Reaches an All‑Time High of 5,048
- April 2000: In Less Than a Month, Nearly a Trillion Dollars of Stock Value Evaporates
- October 2002: Nasdaq Hits a Bear-Market Low of 1,114
- September 2005: Home Prices Post Record Gains
- September 2008: Lehman Files for Bankruptcy, Merrill Is Sold
While these events are now more than a decade behind us, they can still serve as an important reminder for investors today. For many, feelings of elation or despair can accompany headlines like these. We should remember that markets can become very volatile and recognize that, in the moment, doing nothing may seem paralyzing. Throughout these ups and downs, however, if one had hypothetically invested $10,000 in US stocks at the end of 1999 and simply stayed invested and done nothing, that investment would be worth approximately $33,500 today.2
When faced with an ongoing barrage of short-term noise from the media, it is easy to lose sight of the potential long-term benefits of simply staying invested. While no one has a crystal ball, adopting a long-term perspective can change how you can view market volatility and help you look beyond the headlines.
THE VALUE OF A TRUSTED PROFESSIONAL
Part of being able to avoid giving in to emotion during unexpected periods of uncertainty is having an appropriate asset allocation that is aligned with your personal willingness and ability to bear risk. You must realize that if investment returns were guaranteed, you should not expect earning an equity premium greater than a risk-free rate of return.
Fundamentally, risk and expected return are inextricably related. Constructing a portfolio that you can tolerate, understanding that all uncertainty is at the core of investing, and sticking with an informed planning is much more likely to lead to a better investment outcome for planning goals like retirement.
However, as with many aspects of life, most of us can benefit from some help in reaching our goals. Just as athletes work closely with a coach to increase their odds of winning a medal, many successful professionals rely on the assistance of a mentor or career coach to help them manage the obstacles that arise during a career. Why? They understand that the wisdom of an experienced professional, combined with the discipline to forge ahead during challenging times, can keep them on the right track.
A qualified and experienced financial professional can play this vital role for an investor. A true financial professional, such as a Certified Financial Planner® or a Wealth Management Certified Professional® can provide the expertise, perspective, and encouragement to keep you focused on where you want to go and help you stay in your seat when it matters most.
A recent survey conducted by Dimensional Fund Advisors (see Exhibit 1) found that, along with progress towards their goals, investors place a high value on the sense of security they receive from their relationship with their trusted financial professional.
Having a strong relationship with a trusted financial professional can help you be better prepared to live your life through the ups and downs of the market. That’s the value of discipline, perspective, and peace of mind. That’s the difference a true financial professional can make.
Successful retirement and wealth planning is more than investment management. A competent CFP® wealth management professional can help you plan your future with confidence.
1For the US stock market, this is generally understood as the period inclusive of 1999–2009.
2In USD. As measured by the S&P 500 Index. A hypothetical portfolio of $10,000 invested on January 1, 2000, and tracking the S&P 500 Index, would have grown to $33,500 on December 31, 2019. However, performance of a hypothetical investment does not reflect transaction costs, taxes, or returns that any investor actually attained and may not reflect the true costs, including management fees, of an actual portfolio. Changes in any assumption may have a material impact on the hypothetical returns presented. It is not possible to invest directly in an index.
Source: Dimensional Fund Advisors LP.