If you ever needed an object lesson on why you should sit pat and not tinker with your investment strategy, 2017 was the year. You could have thrown a dart at any of the world equity markets and you would have done exceedingly well unless your dart hit Russia.
And if you had been lucky enough or perspicacious enough to own a digital currency and held on, you could be sitting on a beach in the Caribbean wondering what to do with the rest of your life.
There were many pundits and strategists recommending throughout the year that you throw in the towel and move to bonds or cash due to overvaluation, North Korea, China, Trump and a host of other reasons. What 2017 taught us was if you focus exclusively on preserving capital and always position yourself for the next bear market as many have, you’re likely to miss out on substantial market gains. And missing out on large gains can be just as detrimental to your investment performance as taking part in large losses.
From the start of 2009 through the end of 2017 the S&P500 is up roughly 260%. If you had been out of the market for this entire time, you would need to see stocks fall by more than 70% to get back to 2009 levels. Losses of this magnitude are exceedingly rare and have only ever fallen by that much during the Great Depression. The point to keep in mind is that the opportunity cost of missing out on large gains in the markets can be just as important as taking part in large losses.
So pat yourself on the back if you stuck to your game plan and avoided all the noise. Committing to a well-planned strategy for the long term helps you ride the market upward, no matter what bumps you encounter along the way. Sit back and enjoy the slow but steady march up that markets have historically followed without veering off course because of fear and greed or other natural emotions that can lead investors astray.
Blaise Pascal, the 17th century French philosopher and mathematician, put it best,
“All human evil comes from a single cause, man’s inability to sit still in a room.”
Happy New Year.