The markets continue to take investors on a bumpy ride with dramatic swings to the positive and negative. Volatility has been here for the last several weeks and it is beginning to have an effect on investors and the decisions they make in regards to their portfolios. Investors are notorious for putting their portfolio on cruise control when the markets are doing well and then becoming hyper-sensitive when negative returns start appearing on their monthly statements. With the first true market correction (-10% or more) in nearly four years, investors are considering a variety of options with their portfolios, many of them misleading and possibly disastrous. As fear and uncertainty build emotions begin to take control. There are many products and options that prey on investors in these environments…don’t allow yourself to fall for any of the five most common ones we discuss below…
Going to Cash – This is the classic move by investors when they simply can’t take it anymore; throwing their hands up in the air and admitting defeat by selling everything and going to cash. They justify it in their mind, feeling good about it; after all, jumping out and preserving what was left of their portfolio seems like the prudent thing to do. If this is you or you are considering this ‘strategy’ don’t start patting yourself on the back just yet! This could possibly be the worst move an investor could make unless they want to push back their retirement or drastically alter their financial goals. Consider this, every year for the last 35 years the markets have posted negative returns at some point during the year and 87% of the time the markets finished the year positive. Selling everything in your portfolio would be comparable to buying a new car and selling it as soon as you drive it off the lot because you realized that it went down 20% in value! Would you ever do that? We doubt it so don’t do this with your investments! Continue reading →
Congratulations Mr. Market…you’ve delivered a tremendous year of returns to equity investors! With the broad equity markets delivering returns over 25% (S&P =29%, DJIA = 25% and the NASDAQ = 37% as of 12/27/2013) investors are now faced with the question of what to do now? For those investors that were invested in stocks, especially domestic stocks, year-end statements are going to look very impressive but remember that is only on paper. As we step into 2014 what should investors do with their portfolios?
Often investors choose to go with an adage commonly heard in casinos – “Let it ride!” Although the market defied odds and dodged several ominous obstacles, there is no guarantee that it will continue to do so going forward. Sitting back and doing nothing could very well allow those returns to dwindle away and become nothing but a memory. It wasn’t that long ago that ‘The Tech Bubble’ hit investors with a strong left uppercut that they never saw coming. Mr. Market delivered three years of impressive returns (1997 = 33%, 1998 = 28% & 1999 = 21%) only to see it disappear with three consecutive years of negative returns (2000 = -9%, 2001 = -11%, 2002 = -22%) and let’s not forget 2008 (-37%). How can investors avoid repeating history while also managing the risk and unrealized gains in their portfolio? Continue reading →