Slow and Steady Wins The Race

As the investment world turns, we look back at our amazing ten-year bull market run.  In those ten years, you could have had the possibility of gaining 10-12% with a conservative strategy.  Realistically, a conservative strategy yields a 3-4% average return, and they work well for investors that have a low tolerance for risk or are drawing down their funds in retirement.  So, what do these bull market runs create in the minds of investors?  Overconfidence in the market. Unrealistic expectations of an average return. Individuals willing to take more risk than they are naturally comfortable with. 

Always circle back to how you build wealth responsibly.  Unless you are the beneficiary to a large inheritance, win the lottery, or receive an early retirement, you more than likely had to build your wealth the old fashion way.  You saved monthly and understood it was going to take years to build your nest egg for retirement.  We love bull run markets, but they can create problems with many investors that forget just ten years ago we experienced a major recession. Taking on extra risk or getting greedy during these times isn’t worth it for investors. 

Investing in these markets can be compared to driving in traffic.  Consider a scenario where you’re in a traffic jam and witness an impatient driver jumping from one lane to another, speeding up, then slamming on their brakes, only to be passed by you as you’re going with the flow of traffic. Switching lanes like a maniac isn’t going to get you to your destination any faster and taking riskier position in the market isn’t going to get you to your goal any faster.  You are placing yourself in more risk being aggressive when you don’t need to be.  Another option would be getting off of the freeway because you think the side streets are quicker. I compare this to getting out of the market when gridlock comes along.  You can’t time the market, just like you can’t determine when traffic is going to pick up again. 

The graph above is an example of an up and down performance of three ETF strategies from 2010 to 2017. This can be compared to driving, but staying the course is always advised.

So, how do you handle these markets?  In 2017 the S&P 500 was up 21% (dividends reinvested), we would love to have every market up to that territory, but let’s be realistic and responsible about how the markets actually are.  It takes time to build up a portfolio, in general terms, you will have a decent average if you choose an investment strategy that fits your personality and risk level. If you don’t like the driving analogy, how about losing weight.  There is no pill that you can swallow to drop 10 pounds, losing weight and getting in shape involves determination from a meal regimen to working out.  It's not easy, and it doesn’t happen overnight.  In most cases, it will take people five to seven months to get to their goal, and if you deviate from the plan, it will take a week to get out of shape.  Just like investing, it takes a customized plan that fits your comfort level, and it takes time to build up your investments.  You have to stick with it, or you won’t see the progress. 

  This example graph shows the investment of $100,000 in 2010 in the three ETF strategies    (Balanced, Asset Allocation, and Growth)   .

This example graph shows the investment of $100,000 in 2010 in the three ETF strategies (Balanced, Asset Allocation, and Growth).

It's not always slow, just because you are in a conservative strategy doesn’t mean that you won't benefit from a positive market, and just because you are aggressive doesn’t mean you should expect 15% every year.  A well thought out savings strategy is the best way to building wealth. Investing it and adding compounding gains is even better, but you need both to work with each other. If you are the tortoise, sometimes you can hop a ride on a great bull market to get you closer to the finish line, while the rabbit sometimes needs to stop and catch its breath.  Either way, a long-term investment strategy will get you to your goal over time.   


*The foregoing content reflects the author's personal opinions which may not coincide with the opinions of the firm, and are subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that these statements, opinions, or forecasts provided herein will prove to be correct. Past performance is not a guarantee of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. All investing involves risk. Asset allocation and diversification does not ensure a profit or protect against a loss. Finally, please understand that–as with other social media–if you leave a comment, it will be made public.