Investment Beheviour Determines Investment Success
Early in the summer of 2013 the Dow touched a record high. The Dow is one of the benchmarks for measuring the current and future strength of the global economy. It’s an imperfect barometer. Part measurement of value, part current market sentiment. The percentages attributed to both tend to swing pretty wildly.
As a society we tend to focus a lot on the current. The job of a professional is to try and balance current sentiment with business advice. It’s often counter to what is most palatable. It’s kind of like the stretch of weather we had spanning into August. It’s hard to imagine rain if you’ve had 37 uninterrupted days of sun and vice-versa.
So, here we are- post financial crisis. Money has been cheap and the strongest of the corporations and economy in general has benefitted. The doomsday scenario of a few years ago (where the road seemed to disappear) has largely moved to the back burner. However, flare-ups can still occur and if not a financial crisis there will be something else crop up.
So, what did you do? Three likely scenarios.
You froze because you were scared and have not changed a thing. No new savings and most of your growth dollars are still invested in Canada. Your accounts are back to where they were before.
You were skeptical (maybe even scared) but you maintained the faith in your professional and perhaps your own business savvy. You continued to contribute, maybe even more so than before. You’ve done remarkably well.
You assessed your risk tolerance as too great and rather than make minor adjustments were scared out of the stock market. You were happy to get your money out at any cost. Unfortunately, you missed out on a huge recovery.
The primary role of a planner/advisor is not to make money for a client. (that’s a shared responsibility and another subject). Rather, the goal rather should be to create long-term wealth by focusing on what’s beyond today’s headlines. To ensure that a client has a set of objectives that they understand and can sleep at night with (you still might be restless from time to time). That you are prepared and know what to do when the market does what it has always done. Fluctuate.
If you have a properly diversified portfolio risk should not be your concern. If I may, replace the word risk with the word volatility. It’s normal and can make you or lose you money depending upon your investment behaviour. History does repeat itself.