Being Smart With $$ -- Thoughts on the Difficult Markets

 

A few thoughts on the difficult financial markets:

We can pick an historical period that makes our returns look good or we can pick one that makes our returns look bad. We can painfully consider that the US stock market is down 24% year to date. Or we can happily recall that even with the terrible year we are having, the US market has given us over 50% in total returns since the beginning of 2019.

Here are a few things we know about the financial markets:

1. The stock market goes up over the long run due to profits generated by global companies most years (but with no guarantees that the future will be like the past).

2. No one expects the stock market to rise in a straight line.

3. Investors overall are very bad at timing the market so it is not easy to just get in and out at the right times and avoid the big declines. Most large mutual funds do worse than their benchmarks over long periods of time and this would not happen if these managers and teams of analysts knew when to get in and out.

Sitting through a bear market like we are facing might make you question how risky you want your portfolio to be.  Risk is sometimes considered to be volatility in your portfolio but being too conservative over the long run is another kind of risk if you lock in low returns that barely beat inflation.  But your portfolio should be suitable for your horizon.  If your horizon is short and your portfolio is too risky, waiting for a recovery before adjusting your risk can be very dangerous.  And don’t believe you know more than the rest of the world’s investors.  Markets are priced at a level where global investors believe risk and reward is fairly balanced.  If a stock or the whole market were obviously cheap or expensive, investors would quickly trade on that until it was no longer true.  

Please let me know if you would like to receive an email of my full letter to investors.

Larry Pike, CFA

Client Priority Financial Advisors LLC
www.clientpriority.com
Blog: clientpriority.blogspot.com

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