The Secret to Wise Investing
One of the secrets to enjoying life is regaining that childlike ability to live in the moment. Yet when it comes to investing, a totally different mindset is required. Patience and long-term thinking are key.
Young children have no concept of time. In my home, it seems it is much more fun to play superheroes than to brush teeth and get ready for school. How are kids able to tune-out their environment so easily and get lost in the world of imagination? For investors, living in the moment tends to fuel our emotions. In Ron Blue's book, Surviving Financial Meltdown*, he shares that our emotions are real, but they don't always tell us the truth.
As of 2018, we crossed over into what is now the longest bull market in US history. Looking back, it has been an interesting – and for many, an emotional – past 12 months in the markets. Following the worst December on record since 1931 for the Dow Jones Industrial Average and S&P 500, both indices closed out February 2019 with their best two-month start to the year in roughly three decades.** As a result, volatility has been on many investors’ minds lately.
What is important to remember is that we are guided by principles, not headlines. Principles are transcendent, and not dependent on the whims of the market. While each portfolio is tailored to our clients’ individual needs and objectives, our models are designed to be all-weather portfolios to navigate both up and down markets using time-tested, diversification strategies.
Principles also form a solid-rock foundation. Recall the parable of the two houses described in Matthew 7:24-27. While the parable is primarily spiritual in nature, the metaphor may also be applied to investing. Imagine two houses, the one built on sand (i.e. hasty speculation and debt) and the other one built on rock (i.e. biblical financial principles such as building emergency savings, diversifying investments, and avoiding debt). When the storm came and beat on the houses, the one built on sand crumbled, while the one built on rock survived the storm.
When the storms of life reach the stock market (and they always do, like the seasons), the house built on the rock is the one that will survive. And here’s the key: the storms still come on both houses. There will be volatility, down markets and recession. It is part of the natural seasons of the market. But having the right mindset and discipline is the key to surviving the storm, and emerging intact.
While there are whispers in the media and fears of recession, the LPL Mid-Year Outlook research report still points to a strong case for optimism, with strong corporate earnings, and a 49-year low in unemployment, and low inflation among the highlights. Of course, past performance is not a guarantee of future results, and all investing involves risk. It is impossible to time the future, and we will remain disciplined whether recession visits us in 2-3 years, or the next year.
In addition to implementing time-tested best practices for how we diversify the portfolios across the risk spectrum, we also add another layer of research to select mutual fund managers who screen for faith values, in order to aim to make a positive impact with our investments over time. To learn more about faith-based investing, click here for a copy of the newly released second edition of my book, Investing with Integrity: How Investment Choices May Be an Act of Worship.
*Ron Blue, Surviving Financial Meltdown (Atlanta: 2007?)
**Suzanne O’Halloran, Fox Business. “Dow, S&P500 post worst December since 1931”. December 31, 2018.
**Jessica Mention, Wall Street Journal. “U.S. Stocks Close Lower, but Hold onton Year-To-Date Gains: Dow Ended February with its best two-month start to a year since 1987.” February 28, 2019
The opinions voiced in this material are for general information only and area not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.