Avoiding long-term investor regret
It’s fair to say that some doom-mongering forecasters have descended into even more exaggeratedly historic levels of fear and pessimism about the stock market than during the ‘Credit Crunch’ of 2008-09.
We’re watching the whole world flee equities much as it did in the worst of the pandemic, and in March 2009.
And I understand why as an investor you might become fearful looking at the short-term performance. But this massively universal bearishness cannot be right for very long. When everybody goes to one side of the boat, the way they have now, the boat capsizes.
(I should point at that if you happen to have looked at your MFP-managed portfolio recently, you’ll probably have noticed that it’s not showing the same steep downward trend as the S&P 500 on the chart above. That’s because of the diversification that we apply, alongside the weighting to Value Companies.)
The sale is on – 20% off now!
In current conditions, the risk of holding (the wrong amount of) cash has become too high. We’re never going to catch the bottom – no one ever does. No one knows when, where or why the current market decline ends. But history tells us that you don’t get a 20%-off sale more than about every five years.
Try to remember what happened when the market bottomed out after the Credit Crunch in 2009: the S&P 500 went up seven times in the next 13 years. And it always turns suddenly … and sharply. No-one rings a bell at the bottom.
At times like this, if you have money to invest, the risk is no longer that you’re going to get caught in the last 20% decline. The big risk is that you’re going to get caught outside the next 100% advance. That’s something your retirement plan never catches up with.
If you invest and the equity market goes down 20%, you may regret it for a matter of months. If the market runs away from you and you freeze, you’ll end up regretting it for the rest of your life.
By far the most powerful emotion in investing is long-term regret.
So if you would like to chat about your investments and any questions or concerns you have, book a call with me today.