By Joseph Ricciardi, CFP®
As of this writing, the US stock market has remained in positive territory since March of 2009, and we are fortunate to have enjoyed the second longest bull run since the end of World War II. While it is a fool’s errand to try to predict exactly when this bull run will end, I can say with great confidence that eventually the bear will rear his ugly head. It is important for investors to understand and be prepared for this eventuality.
Regardless of whether markets are moving up or down. The same rules for successful investing apply;
1 - You must be confident that your portfolio is properly allocated based on your personal investment objectives, time horizon, and risk tolerance,
2 - You must be emotionally prepared to deal with the discomfort that declining asset values tend to evoke.
My personal view* is - investor behavior, good or bad, has a bigger impact on long term personal performance than any other factor, with "other factors" primarily defined as investment timing, investment selection, investment allocation and diversification. I am not advocating that these other factors are not important, I just believe that they are less important than investor behavior.
So, what exactly is "good" and "bad" behavior as it applies to investing? Let's get the bad out of the way first, so we can focus more on the good; bad investor behavior is any action or inaction that results from an emotional response to present circumstances. Simply put, it is when we act out of fear or pain or greed, without regard for principle or process. Conversely, good investor behavior is any action or inaction that results from adherence to sound principles and practices. Sound principles include having a positive outlook on the future, exercising patience, and maintaining discipline when faced with negative outcomes. Sound practices include proper asset allocation, diversification and rebalancing.
It is impossible to be a successful investor without having a positive outlook on the future. Advances in healthcare, technology, energy and productivity, to name just a few, will make the lives of billions of people around the world better. People will readily purchase products that make their lives better. Companies will profit from the sale of these products, and investors will be the direct beneficiaries. You most likely will not participate if you do not share the vision. Patience is also a necessary trait of the successful investor. Investing is a long- term endeavor, and often short term performance will allow our emotions to take control of our investment decisions, preventing us from remaining focused on our long term goals. Discipline goes hand in hand with patience, allowing us to continue to do the "right things" even when they don't seem to always be working.
As a financial adviser, it is extremely rewarding to provide stewardship in assisting my clients to adhere to sound principles as it applies to their investment decisions, as well as assisting them in the execution of sound investment practices. It is also a tremendous privilege to be a part of making someone's dreams, at least as it pertains to finances, come true.
*I would like to give credit to Mr. Nick Murray, author and Advisor Extraordinaire, who's insight has greatly shaped my views on the importance that behavior plays in achieving investment success.
Please send any financial questions you wish to have answered in this column to Dorion-Gray Retirement Planning, Inc. Fax 815.455.4989 or email firstname.lastname@example.org. Joe Ricciardi, CFP® is a Wealth Manager with Dorion-Gray Retirement Planning, Inc. located at 2602 IL Route 176, Crystal Lake Il 60014-2225. Securities offered through Securities America, Inc. Member FINRA/SIPC. Advisory services offered through Securities America Advisors, Inc. Dorion-Gray is not affiliated with Securities America companies. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered