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A Big Investing Mistake You May Be Making

Seth Jentner03/07/2014

According to finance professor and author, Jeremy Siegel, individual investors are making a typical mistake today: They are overreacting to the negative sentiment that has built up over the last 10 years and “taking too cautious a position with regard to investments.”

Last week, you read about how investor Warren Buffet claimed that the long-term return of bonds is more risky than stocks in today’s low interest rate environment.

Today, I am quoting Professor Jeremy Siegel, who teaches at The Wharton School and who wrote Stocks for the Long Run. According to Professor Siegel in the Journal of Indexes, some investors are reacting very badly by avoiding stocks and locking in “yields on bonds that are extremely poor compared to any historical calculation of stock returns.”

Although some professionals talk about a “lost decade” due to minimal returns on the S&P 500 Stock Index from 2000 through 2009, our experience shows a more diversified investor who also held value and small stocks had much better performance over that same period.

Investors should be happy about volatility—during quick down markets, long-term investors can pick up bargains.

“I would advocate that investors use these opportunities to accumulate equities and actually thank program traders for giving them bargains in the market,” Siegel said.

Here at Jentner Wealth Management, we use market volatility as an opportunity to look for buying opportunities during periodic portfolio rebalancing.

Remember: Don’t confuse short-term investment stability with long term safety. Consider how a diversified portfolio can help you obtain a successful long-term investment experience.

For more insight, listen to Jentner Wealth Management’s weekly podcast by clicking here. Or download Jentner’s newest white papers on The Four Cornerstones of Prudent Investing and The Active Versus Passive Investing Debate.