Brock Williamson, CFP®
A Powerful Perspective
Every now and then the happenings of the market can teach us important lessons. We can improve our investment decisions by learning from the past and heeding correct perceptions.
Let’s go back in time to June 15, 2019. At that time the economy was humming. The S&P 500 was at 2886 and unemployment was at historic lows of 3.5%. Now, let’s assume that I was able to see the future and share with you what I witnessed. My report may have been something like:
Within the next twelve months we will experience a worldwide pandemic that we haven’t seen in decades. States will order citizens to shelter in their home for weeks, countries will close their borders, travel will largely cease to exist, unemployment is going to skyrocket to over 15% and hundreds of thousands of people will die from this virus.
What kind of investment decisions would you have made? My guess is that you would have significantly changed your portfolio, most likely going 100% to cash. And given perfect foresight, it would have seemed to be a rational decision to make. But it would not have been the correct one.
On June 15, 2020, the S&P 500 was still up over 6% compared to 1 year ago – despite the awful pandemic, economic fallout and market volatility. It is quite an amazing fact.
This is just one, of many examples, why we don’t want to allow forecasts and news to drive our long-term financial decisions. Even if you are correct in 100% selling (market goes down after you sell), you still have to figure out when to get back in. This now becomes the art of guessing/speculating rather than the science of investing. Slight adjustments more conservative or aggressive are part of our process. However, going 100% to cash is not investing and is pure speculation. Most of the time speculation does not turn out well.
Sometimes the market moves in line with news; sometimes it doesn’t. It happens on the way up and on the way down. Let’s ensure our financial decisions are deliberate, thoughtful and in line with our plan.
©2020 The Behavioral Finance Network. Used with Permission
The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. All indices are unmanaged and may not be invested into directly.