As they say, “a picture is worth 1,000 words.”* Please do whatever you need to do with your phone or laptop to make sure the graphic below is visible. And make sure to ZOOM IN or turn the phone sideways (or ask me to send you the PowerPoint or PDF version of this slide).
With that said, the title of the slide is: Reacting Can Hurt Performance. And here is a question,
Who is NOT scared these days or after this week?
Stock markets are near all-time highs. The US Fed has been talking about reducing or altering their asset purchase program. The situation in Afghanistan is currently ugly. US bond markets are not at all-time highs but are near all-time highs if the pandemic panic is removed from the long-term view. Fear may be entering the picture for some investors and Americans in general, if not already.
How does this situation translate to saving and investing? Especially if a saver is investing seriously for the first time? What types of reactions can hurt performance the most?
Savings and investing decisions need to have been made before today. What kind of decisions? Here is a short list:
- Asset Allocation (amounts of Stock, Bonds & Cash held overall in a portfolio)
- How to manage concentrated stock positions
- Amounts of cash held in emergency funds & rainy-day funds
- What discretionary expenses can be cut back, if necessary
Notice that what is NOT on the list:
- What stock to sell
- What bond fund to sell
- What stock to buy
- What sector to buy
- How much GameStop to buy/sell (is GameStop even still a stock?? Just kidding.)
The “NOT on the list” items just mentioned are mostly reactions that lead to the hurt performance summarized in the chart above. There is so much more to say about how emotional reactions do not belong in long-term investing. These key points are an excellent start.
*Slide courtesy of Dimensional Fund Advisors. Disclaimer above.