Originally Printed in Lake Wylie Today, Spring 2023, Issue 1
Ignore The Headlines, Keep The Long View For Financial Success
Stocks give up gains, close lower again; Fed releases 2023 stress test scenarios for banks, including an extra new shock for big firms; Lithium Batteries Are the New Oil.
Two Weeks Before:
Morgan Stanley Says Don’t Buy the Rally as Fed Looms; US Economy Cools Like the Fed Wants; Blackstone Sees Inflation Accelerating
Crazy isn’t it? What’s an investor to believe if we get whiplash just reading the headlines each day. I could go back years and find the same dramatic headlines in almost any paper. Written only to grab your attention and focus; but don’t give in!! It’s simpler than the “experts” make it out to be and you don’t need a doctorate in finance or run your own hedge fund to do well in the market.
Just before the world shut down three years ago, the S&P closed at an all time high of 3,380 on February 10, 2020! As I write this article on the third anniversary of the index hitting that watermark, the index closed at 4,082: a total return of almost 21%, or an average annualized return of approximately 6.5%. Granted, the 12-month periods ending on February 10 in 2021 and 2022 saw annual returns in excess of 15% each, those returns were all given back in the last twelve months. To put this in perspective, since 1971, the stock market has delivered an annualized return of 7.6%. So while a 6.5% return isn’t something to get excited about, if we invested 10,000 in 1971 and ONLY had an annualized return of 6.5%, that one-time investment would be worth over $291,000 today. A lot of craziness has happened in the three years since that market peak 2020, but the stock market has kept on chugging along, doing what it always has done.
So let’s figure out what you can do to flatten out the volatility in your own portfolio and get that steady return. First things first, let’s assume you already have an emergency fund with ready cash in liquid investments. By way of definition liquid means an investment that will not lose value and have little to no risk.
Once you have your ready cash squared away, it’s time to settle down and take a look at the rest of your portfolio. If the historical returns of the stock market prove one thing, it’s that if you invest over the long-term and with a discipline you will be successful. Choose a discipline that works for you, one that you can understand and that can be easily implemented. Buy and hold is boring and stodgy, but it works if you choose your investments wisely. If you like to speculate, do that with money that you won’t need for retirement, buying a home, or a college education. I typically recommend that investors use less than 5% of their investable assets to speculate. The rest needs to be working for you.
Lastly, ignore everything else. That’s right, ignore the guys at the club, ignore your hairdresser who always has a “sure-fire” investment idea she just heard about and ignore all the Chicken Littles who are claiming the sky is falling. Investing requires intelligence and self-discipline. Make good choices and leave your emotions out of your portfolio.