the right way to invest blog
Here you will find the Q2, 2019 Market Summary Report. Typically, I draw your attention to an informative or thought-provoking (in my opinion, at least😊) write up that concludes the quarterly report, but this time is different. On page 4 (pasted below, as well), you will find the Long-Term Market Summary for major index returns over the last 1, 5, and 10 years. I think it’s a very powerful graphic showing the importance of owning a diversified portfolio covering all these markets – you’ll see big green arrows all across the board! We know short-term time frames of especially 1 year, and even 5 years can exhibit very wild and unpredictable returns, but 10 year returns start to show pretty reliable numbers – typically you will find two things: 1) positive returns; and 2) stocks offering better returns than bonds. We know owing stocks (for growth) and bonds (for protection and income) for the long-term are a great wealth building and wealth preserving tool and graphics like these reinforce that belief.
Everybody has or knows someone who has a great market timing story. Their story might be a little exaggerated or embellished, but it’s probably mostly true…of course, you typically only hear the good stories and not the bad ones. Market timing is tough, very tough. It requires picking the right time to get into a stock and the right time to get out of a stock – it’s doubly hard to get it right both times.
For every share of a stock bought, there is a share sold. Typically, this buying and selling is done at an exchange. The combined effect of all this buying and selling is that all available information is quickly incorporated into a stock’s price. So, trying to time the market based on an article you read, a TV show you watched, a chart you analyzed, or what your neighbor said is likely to send you chasing after old news. If only we could stay ahead of old news.
But what about professional stock pickers? They’re professionals, so they must know more than us, or be correct more often, right? Unfortunately, that’s not the case. Check out the this article from DFA to learn why.
Here you will find DFA's quarterly report for Q1, 2019. In my Q4, 2018 quarterly report post, I pointed out the big red arrows that represented major stock market indexes across the globe*. My key take away was that major markets do this in the short-term; there will continue to be stretches where markets perform very poorly, but we must stay vigilant and know these big red arrows are a temporary bump in the road to the overall growth of major markets (more green arrows) and more importantly the growth of our retirement portfolios. Remember markets move quickly and we saw that happen over the last six and especially the last four months!
*”Q4, 2018” graphic below represents the whole year, but the market losses were concentrated in Q4
"Markets move quickly!" – you’ve heard me say it or write it countless times.
The S&P 500 (which represents over 500 of the biggest companies in the U.S.) had its worst December since 1931. What happened next? The S&P 500 had its best January since 1987. In December, did we panic and sell? No. In January, did we get over-confident and make irrational decisions? Didn’t do that either. Instead, we stayed calm. And we stayed calm because we know this is what markets do; they’ve done this before too many times to count, so when it happened in December / January, we were prepared and we knew how to handle it, and when it happens again, we’ll be prepared for that too.
Kudos to our clients because not one panicked in December; there were emails and phone calls, which are welcomed, but nobody sold while the markets were down. If it was warranted, we took opportunities to shift money into stocks for clients and (on paper at least) they’ve received a little extra boost in their portfolio’s value with January’s rebound, more so than if we had done nothing in December, or even worse, had we sold in December.
Again, stay calm and stay the course, but the more of these quick volatile moves we get through, the better prepared and less worried we’ll be when they happen again.
Please click here for the Q4, 2018 Market Summary provided by DFA. Q4 was very bad for U.S. and foreign stock markets, as well as global real estate exposure. Please take a look at page 4 (also pasted below) for a long-term market summary. Here you’ll see all big red down arrows for our 1-Year market performance, but, more importantly, don’t overlook the big green up arrows that represent 5 and 10-Year market performance. When investing in stock markets we know a lot of short time frames, like a month, a quarter, or maybe even a year or two will be down red arrows, but that’s OK because we invest in stocks for long time frames, like 10 years, 20 years or even more. And long time frames will show us plenty of big green arrows pointing up.
Michael Pensinger, CFP® is Owner and President of Pensinger Financial, Inc.
He grew up in Park Forest, Illinois and now resides in Lemont, Illinois with his wife, two children, and two dogs. Michael serves as Treasurer on the Lemont Area Chamber of Commerce Board of Directors and he volunteers for the Lemont Open Space Committee. Read More