October, with the government shutdown and near miss on the debt default, was a great teaching experience for behavioral investing. So don't let fear or greed guide your decisions.
October was a great teaching experience for behavioral investing. If you were scared of what your portfolio would do in a government shutdown and possible default, then there are a few simple lessons to take away from this month in history.
If you have a longer term time horizon of projected use of your investments (10-plus years), then an opportunistic investor may have viewed the situation as a chance to buy low (buy low, sell high, right?) during the volatile environment that would have occurred if the country didn’t reach a debt ceiling agreement. The shorter the term time horizon of use of money, then the more inappropriate it was for the money to be exposed in the volatile market in the first place.
I am always amazed at the converse thinking and how fear and greed tend to drive investing decisions rather than logic, investment objective, risk tolerance and time horizon.
If you need the money in next one to three years, the money really doesn’t belong anywhere near the market, therefore eliminating any short term anxieties with the back and forth in the market from influences beyond our control. If you don’t need the money for the next 10 years you should consider a well-diversified portfolio that fits your investment objectives, time horizon and risk tolerance with at least annual rebalancing and going from there.
As mentioned in previous articles if you have new money to put in, it may work well dollar cost averaging this money in even dollar amounts as it is earned to buy more shares when the market is down and less when it is up. There are too many unpredictable factors (i.e. tsunamis, wars, law changes, etc.) that can sharply affect market pricing in the short term, but long term we can help position ourselves for potential growth by innovation, technology and increased efficiency in our processes and uses of our resources. Let time of use, not fear or greed, be your leading factor, among other things, of whether or not to enter or leave the market.
Dollar cost averaging does not assure a profit and does not protect against loss in declining markets. Also, since such a program involves regular investment purchases regardless of fluctuating price levels of the investment, consider your financial ability to continue purchases through periods of low price levels.
Past performance is not a guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than originally invested.
Jon C. Ylinen is a Financial Advisor with North Star Resource Group and offers securities and investment advisory services through CRI Securities, LLC. and Securian Financial Services, Inc., Members FINRA/SIPC. CRI Securities, LLC. is affiliated with Securian Financial Services, Inc. and North Star Resource Group. North Star Resource Group is not affiliated with Securian Financial Services, Inc. Please consult a financial professional for specific advice in relation to your individual circumstances. This should not be considered as tax, specific loan repayment for an individual or legal advice.
Tracking #750124/ DOFU 10-2013.