Private Wealth Matters

Staying the Course

Staying the Course

Today’s blog post is written by Withum Wealth Management’s Managing Principal, James Ferrare, CFA, CPA.
We are rapidly approaching the 30th anniversary of the infamous one day 22.6% decline in the stock market(October 19,1987). And for those with shorter market memories, October 2017 will mark the ten-year anniversary of the market peak which preceded the “Great Recession.” As such, we thought it would make sense to briefly highlight the benefits (and perhaps simplicity) of long term investing. Both October milestones serve to reinforce our view that maintaining a long term and disciplined approach to the market is what really pays dividends. For investors that permanently exited the markets on October 19, 1987, they missed the market (Dow Jones Industrial Average) climb from 1,738 to over 21,000. And for those who washed their hands from investing at the end of the Great Recession, they missed a 250% appreciation in their stock portfolio.
Despite efforts of well-respected business publications and media outlets, many investors significantly “under-owned” this market rally (March 2009 to current). This reality is no different than what followed the October 1987 “crash” and “tech wreck” of 2000 – namely, the individual investor has trouble “staying the course” following turbulent market conditions. We get “Wall Street” will never have a shortage of new (or recycled) investment ideas to peddle to the investing public. And as any TV or radio listener can attest you can’t get through a ten-minute window without being on the receiving end of an endless spew of competing and conflicting investment advertisements. Our concern is investors are listening to the wrong messaging.
This past weekend Barron’s Steven Sears ended his “The Striking Price Options” column with a spot-on message, “Buy as much fear as you can afford.” We are not blessing his or anyone else’s individual stock picking but rather suggesting the individual investor can tilt investing odds in their favor with some basic discipline and common sense. We completely agree with the notion investors need to maintain an optimal level of equity exposure that corresponds to their current financial condition.
Many academic studies suggest investors benefit on average when they:

  1. Focus on time in the market not market timing,
  2. Maintain a suitable asset allocation and
  3. Try to minimize investing costs and related taxes.

Up until recently, there were more hedge funds than Taco Bell restaurants – did you really need one? (I’m referring to the hedge funds, nothing wrong with a good taco.) Today there are more Exchange Traded Funds (ETFs) than individual stocks – do you really need the ability to intraday trade an index fund? (perhaps better to hold onto one as part of a well-diversified portfolio.) Let’s keep this simple as October is right around the corner. If you have a long-time horizon and your financial plan indicates you under own stocks, consider adding market exposure on weakness. If you are in the fortunate position of being perhaps too heavily allocated to stocks, consider rebalancing your portfolio. If you are a short term oriented investor, then we can only wish you good luck.
Long term investing does not need to be overly complicated or unduly enrich your broker.
Stay tuned for more helpful tips in the future from Withum’s Private Client Services Team!

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