The S&P 500 Index has risen 405% since March 2009 and is up 20.6% year-to-date through September 30, the Joker movie is all the rage right now, and Halloween’s just around the corner, so let’s talk about fear as it relates to long-term investing. Let’s also throw in greed since it seems to raise its ugly head at times like these.
It’s long established that fear and greed are what move money in the investment industry, and moving money is how most investment advisors generate, justify, enhance, and retain their fees and commissions. Except for the hard work of competing effectively with others who promote the same philosophy but with different marketing angles, building an investment business on fear and greed is pretty easy.
Building an investment business on a more thorough knowledge of investing science—both economic and behavioral—and on the confidence derived from reason, logic, and experience is hard. Applying discipline to reduce activity, increase predictability of outcomes, and promote a more stable and consistent investing experience is even harder. All these things add value that might take years to fully understand.
I point this out because far too many investors still fall victim to short-term fear or greed and make changes to their portfolios that often negatively affect their long-term investment outcome. Our view is that you either take the time to understand how our industry works, so you can ask the right questions and protect your wealth, or you allow your emotions to drive your decisions. Or worse, you allow yourself to be manipulated by good looks, a pleasant demeanor, and a good story. “Trust me” isn’t enough. In fact, they might be the most dangerous two words for an investor, since Wall Street clearly depends on them more than on science and evidence in order to attract and retain customers.
Advisors like our team at Equius are willing to invest whatever time and effort are necessary to help you develop the knowledge, confidence, and discipline to be a truly successful investor. They don’t just say, “trust me.” They say, “Trust the evidence, and here it is. Let me help you with it. Let’s take our time—whatever is happening with the market, politics, the economy can wait until we really figure this out and get you set on the right course. Then we will work with you to execute your plan in a thoughtful and diligent way and coach you through the fear and greed impulses we all experience.
“We’ll also work with talented experts to reduce your taxes, protect your assets, and fulfill your wishes through trusts, charitable endeavors, and other techniques as needed. You can then get on with living what’s important to you instead of wasting precious energy and assets feeding fear and greed.”
Consider the alternative. Active management is called that for a reason. Once you are in the grip of active management, whether promoted by a stockbroker, fee-based advisor, insurance agent, or retirement plan consultant, your investing life will be dominated by change. You’re very likely to change asset allocations, individual securities and funds, advisors, strategies, philosophies, and firms in varying degrees many times over your investment time horizon. All those changes are more likely to cost you money, increase uncertainty, reduce your confidence, and stoke your fear and greed emotions.
So what do you fear today? A market collapse after nine years of exceptional returns? Foreign stocks that are still lagging U.S. stocks? U.S. and global politics? More pointedly: should you fear an asset class that has appreciated at a rate 83% above its historical average for the last nine years (S&P 500 Index) or one that has outperformed its long-term average by only14% (Russell US Small Value Index)? Or is it better to take fear out of the equation and maintain your well-considered portfolio allocations through effective counsel and disciplined rebalancing?*
An asset class strategy addresses all those fears without acquiescing to them and offering short-term “fixes.” Our team at Equius will take the time you need to be confident with the strategy and will never say, “trust me” until you can say, “I trust it” first.
*See our blog post, “Fear, greed, or ignore?”
Equius Partners is a Registered Investment Advisor. Please consider the investment objectives, risks, and charges and expenses of any mutual fund and read the prospectus carefully before investing. Indexes are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio.
Past performance is not a guarantee of future results. This information is provided for educational purposes only and should not be considered investment advice or a solicitation to buy or sell securities. There is no guarantee an investing strategy will be successful. Investing involves risks, including possible loss of principal. Diversification does not eliminate the risk of market loss.
© 2020 Equius Partners, Inc.