Let Me Clarify
We’ve all driven on a busy highway and tried to change lanes when the cars ahead began to slow down and the next lane over was moving faster. Inevitably, the lane you just left soon passes you. Did you second-guess changing lanes and wonder if it will save you time or even make the trip longer? Times like these demonstrate the downside of being too shortsighted and remind us to take a deep breath, have patience, and enjoy the ride. This same concept can be applied to how we approach investing.
Let me clarify.
Much like that highway, we see “hot” investments that pop up or, at times, we may see our portfolio lagging a particularly booming sector. As humans, we want it all and feel that we’re missing out, which is exactly when you may tempted to abandon your current investments and hop into those that have recently been doing well. Often, this shift is soon followed by volatility or better performance in other areas; leaving you right back where you started.
So, what is an investor to do?
My thought would be to focus on the long-term goals and understand the realities of getting there.
Unfortunately, the reality is that there is no crystal ball to predict exactly what the market is going to do or when. In fact, historically, most forecasters are consistently wrong. In most cases, the risks of short-term thinking and attempting to time the market are greater than the risks of developing a long-term plan and investing through the ups and down. Not only is it near impossible to determine the exact “top” and “bottom” of the market, but transaction costs, taxes, and behavioral tendencies are just a few of the many other obstacles that could present themselves along the way.
Being a part of such an uncharacteristically long bull market has A LOT of investors thinking a major drop “won’t happen to me” or that “it will always come back”. But what if this ride does get bumpy? Is it worth the constant lane changes and frequently having to second-guess yourself?
Don’t mistake this for thinking there won’t be volatility, because there will be. That’s one of the few things we can say for certain.
The recent volatility in the market was felt by everybody. But, as part of a well thought out long-term plan, a drop in the market can also present an opportunity to buy a portion of your investments at a discount. Don’t forget, the concept of investing is based on buying low and selling high. If, after a drop, investments are sold out of panic without a plan, you’re likely doing the opposite.
With that, I challenge you. Next time an investment decision presents itself, I challenge you to not get caught up in the short-term hype without first asking yourself what the end goal is, to acknowledge the risks that could pop up along the way, and to develop a plan for the long ride to whatever your destination may be. (HINT: if you don’t already have an appropriate investment plan, I know exactly who you should call!)
As we embark on this clarifying journey together, I encourage you to submit any ideas, topics, or questions to firstname.lastname@example.org. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendation for any individual. “Let Me Clarify” is a weekly blog containing Chad Baxter’s insights and thoughts about a variety of topics. To learn more about Chad, click here
This information is not intended to be a substitute for individualized legal advice. Please consult your legal advisor regarding your specific situation. Clarify Wealth Management and LPL Financial do not provide legal advice or services. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All investing involves risk including loss of principal. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss.