Simple Is Sophisticated


When the market is free-falling, taking dramatic action is tempting. Tax-loss harvesting, dollar-cost averaging, and rebalancing are tactical options to consider during a market drop, but the critical action is to stay invested. Folks swear by their NCAA bracket, only to have their predictions crushed by April. Some people addictively play the lottery, only to see their money disappear. Timing the market, like crafting a perfect bracket or winning the jackpot, is impossible to do consistently. Market movements are impossible to predict; therefore, tolerating volatility is part of being a sophisticated investor.

Say you sold stocks today as the market plummeted over the next several weeks. Would you have sold at the bottom or at the top? Would you act swiftly if there was a rebound? How much of a runup would you be willing to miss out on to dodge a false positive before it fell lower? Even if you sold at a good time, would you reenter when prices were lower than when you exited? Making guesses with your life savings involves a super-human kind of insight and emotional fortitude. Instead of trying to do the impossible, simply choose strategies that will grow your wealth substantially more than market timing: live within your means, invest for the long-term, manage your risks, and diversify your investments. 

Spending less than you earn is not complicated, but it is powerful. There’s nothing wrong with spending money, just ensure your assets and income outpace your expenses.

Long-term investing can help minimize worrying about investment timing. Trying to time the market may lessen a portfolio’s long-term potential. In 2013, Fidelity conducted an internal study demonstrating that their best-performing accounts over the previous 10 years were those of deceased investors! Investments left untouched for years yielded the best results. 

Risk management involves having cash available for emergencies, as well as being adequately insured should you become disabled or die prematurely. Managing your risks helps to ensure that a health issue, early death, or emergency won’t disrupt your long-term wealth-building plan. 

Diversification is spreading your assets among different asset classes and market sectors. Even if you’re concentrated in a bread-and-butter stock, will the discipline to sell overrule greed at the right moment? You don’t have to look far back in history to see the disastrous effects of Enron and the tech bubble. 

Wealth accumulation does not require a PhD, but it does require the wisdom to focus on things within your control and avoid predicting the future. This may sound simplistic, but it’s how we’ve helped people grow their wealth for the last 15 years. Our clients are disciplined savers and we remain principled in our investment approach, focused on time-tested wealth building strategies. We believe we have been a part of our clients’ successes and would like the opportunity to be a part of yours too. We are here to guide you forward.

This material is for informational/educational purposes only and should not be construed as investment advice. Diversification does not assure a profit or protect against loss in declining markets and cannot guarantee that any goal will be achieved. Past performance does not guarantee future results. Contact your financial professional for information specific to your situation.

Advisory services offered through Commonwealth Financial Network, a Registered Investment Adviser

Kayla HeadshotThis Insights article is contributed by Kayla Willliford Johnson, Financial Planning Associate at Pathfinder Wealth Consulting.

Categories: Insights