Many of us are old enough to have seen the Bill Murray movie “Groundhog Day”. In this movie, “Phil”, played by Bill Murray, has a day that repeats itself over and over again. For many investors, market corrections can seem like an investment “Groundhog Day”. During these times there are two kinds of investors. Those who benefit from volatility and those who shoot themselves in the foot. For the former, this can be a time of confidence and assurance. For the latter, it can seem like a miserable day that just continues to repeat itself with no end in sight.
So what can we do to help avoid getting stuck in a Groundhog Day Investment Loop?
1. Know your history
While history doesn’t guarantee a future outcome, we can use the information that history provides to help us not make mistakes in the future. The chart below, provided by our good friends at Fidelity Investment, shows us what has happened with the S&P 500 since 1950, the corrections, and the following returns 12-months out from the trough.
2. Have an investment plan
When I’ve asked investors what their investment plan is, I’ve received various answers, all basically saying the same thing. Make as much money as I can! Making money, while being a great goal, is not a plan. Do you have a plan around choosing investments? How will you evaluate those investments? What is your sales discipline? What is your buy discipline? If you get out of the market, what will be the rules in which you’ll get back in?
Having answers to these questions before volatility hits not only helps you navigate through these times but also may keep you from having knee-jerk reactions to short-term events.
3. What’s the goal
I said earlier that making money is not a plan. While I stand by that statement, I would add that making money is part of the overall plan. Maybe a better question would be why. Why are you investing? What would making money on your investments do for your life? How much money do I need to make and how much risk am I comfortable taking to make that amount of money? Are you making money using investments, that conflict with your value and/or beliefs? Are your investments, companies that you would be proud of being an owner of?
As you can see, while making money is a great goal, it’s not a plan. Much more thought should go into your goals and if those goals are the right goals for you.
On February 2nd, 1887 in Punxsutawney, PA “Groundhog day was first celebrated at Globber’s Knob. The “Groundhog Day” tradition is that if the rodent comes out of its hole, sees its shadow. Gets scared, and runs back into its hole then there will be 6 more weeks of winter. On the other hand, if there is no shadow, we’ll have an early spring.
On “Groundhog Day 2022” we can break the endless cycle of investment mistakes of our past and celebrate an early Spring towards our financial goals.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Securities are offered through LPL Financial, Member FINRA/SIPC. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.