The financial news headline on January 3, 2011 said: “Sure – Stocks Are Rallying, But Are Investors Too Bullish?” The article mentioned troubling factors such as European sovereign debt, an overly accommodating Federal Reserve policy and political instability from the new Republican-controlled Congress.
Well, what did we see during the first quarter of 2011? In no particular order, we saw interest-rate hikes in China, destabilization across the Middle East, food price increases and food shortages around the world, soaring energy prices, bad inflation readings in the United States and human tragedy on an epic scale in Japan with the threat of a nuclear disaster.
So what happened with the market? Well, on March 31, 2011, U.S. stocks finished the first quarter with their best first-quarter performance since 1998. Although the markets finished down modestly at the end of 2011, they provided investors with double-digit returns in 2012 and continued the strong performance through the first five months of 2013.
Is there a lesson to be learned? Yes. Sound investing is never about timing. It’s about time. Sound investing has never been about the ability to time the market. It has always been about being in the market over an extended period of time regardless of daily events.
Today, the S&P 500 index is over 1,600. 30 years ago it was around 130. 30 years before that it was 22. Most people who are investing for their retirement have at least a 30-year horizon. A retiring couple 62 years of age has a joint life expectancy of 30 years. Your timeframe is not from now until you retire; it is from now until you leave these mortal shores. Anyone who has anything remotely approaching a 30-year time horizon and who is worried about daily news events is focusing on exactly the wrong thing.
Focus on your long-term investment goals and your real time horizon. Treat daily news events as interesting, not as anything remotely connected to investment strategy. Work with your financial advisor to develop a risk-appropriate, well-diversified portfolio of cash, bonds and stocks to stay invested throughout the inevitable market cycles in order to achieve and maintain financial independence throughout life.
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