Has the Stock Market Train Left You Standing at the Station?

Time to get on ...or off the train?

The Market Is Running Away– Who Is Jumping on Board?!

The stock market has posted some very impressive results with the S&P 500 up over 8% year to date and last year it finished up 16%. Many investors who were pushed to the sidelines after the ‘tech bubble’ and the incredibly painful sell off in 2008 now find themselves at a crossroads. Should they buy in and jump on the ‘bandwagon’ or continue with whatever their current strategy is?

Times like these often remind us of the famous children’s book “The Tortoise and the Hare”. So often investors want the ‘quick return’ or feel they have to make up for poor performance in the past. The simple truth is the investor that has a plan and sticks with that plan typically will come out ahead and ultimately ‘win the race’ much like the slow and deliberate tortoise. Where do you find yourself these days? Are you the tortoise (working with a suitable plan) or the hare (racing about with no direction and hoping for the best)?

In the two decades through December, the average return of all investors in U.S. stock mutual funds was an annualized 4.25% vs. 8.2% for the S&P 500. That translates into a difference of $25,467 for an investment of $10,000. "The dismal truth is that over the long run, the average person is a woeful investor," writes the NYT's Jeff Sommer.

Numbers like this can be very sobering, particularly when you consider that they are over a 20 year period! Since 2008 investors have been taking billions of dollars out of equity mutual funds (over $519 billion) and have invested in fixed income mutual funds (over $800 billion). For the first time in years we are seeing this trend reverse and money is moving back into the stock market as the returns are simply too good to ignore any longer. This ‘herd mentality’ is something that we have seen too many times in the past – investors need to take a step back and seriously look at their own situation and decide what is best for them.

To quote one of the most successful investors of our time, Warren Buffett: “Be Fearful When Others Are Greedy and Greedy When Others Are Fearful”. If you find yourself with more questions than answers, now is an ideal time to revisit your plan or create one if you currently don’t have one established. Rather than rushing to be part of this ‘great bull market’ it is essential that you are in touch with who YOU are as an investor and what YOUR goals and objectives are. What most investors don't realize is that having a disciplined plan can drastically improve overall performance and it is essential to stay focused on the plan. According to Vanguard, “One study suggests that more than 91 percent of a portfolio’s return is attributable to its mix of asset classes (allocation). In this study, individual stock selection and market timing together accounted for less than seven percent of a diversified portfolio’s return.”

As the saying goes, "People don't plan to fail they simply fail to plan." Don't catch yourself in a few years looking back and wondering how you allowed yourself to repeat the same mistakes you made with your portfolio during the early 2000's and again in 2008! Now is the time to make a plan and stick with it – don't buy into the hype. Allow yourself to feel confident and no longer be asking yourself these questions: What is my plan? What is my ideal allocation? How much risk do I need to take with my portfolio? What and when do I buy and/or sell?

Comments 2 comments

Eddy2106 profile image

Eddy2106 3 years ago from Chicago Suburb, IL

I was looking forward to another stock market crash in January with all the talk of tax cuts and what not. I took little advantage on the 2008 crash by investing in ford and other low priced stocks at the time. Do you invest in penny stocks?


MyPortfolioGuide profile image

MyPortfolioGuide 3 years ago from Orange County, CA Author

Thanks for your comment. As you likely know...we'll eventually see a correction...and another bear market. In our opinion the media overhypes a lot of issues and that amplifies poor investment choices.

No... we don't advise on or invest in penny stocks although there is money to made there as well.

Buying stocks like Ford, or any number of quality companies/brands at deep values is more up our alley. First things first though...getting a proper strategy and having a discipline behind it matters more in the long-run than what stock one selects. Few people want to believe that but the data doesn't lie.

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