It has been a delightfully long time since I have written about tough times in financial markets. And here we go!
For about the last 18 months we have been suggesting that the U.S. Stock Market looks expensive and that we were due for a “correction or downturn or bear market or hiccup or the latest edition of the end of the world as we know it”. You are free to insert whatever word or phrase you wish to describe the excitement and perfectly normal behavior that is going on in the world’s financial markets as I write this.
What follows is what is generally known as the Emotional Cycle of Investing. I am thinking that this is a timely and appropriate reminder that emotion is the greatest threat to investors.
The above graphic is the textbook, academic version of this cycle.
This one gets a little more personal, but is probably more meaningful. And please note that the direction of the graph is northeast (an investor’s favorite direction).
This one puts the cycle into the real world.
This one is my personal favorite, because I like to see things distilled down to their basic essence.
What is going on now in the world’s financial markets is natural, normal and long overdue. You have a well diversified portfolio and an investment strategy that is appropriate for you. There have been times in the past when your account value has gone down. It was so long ago that maybe you forgot! Every few years it seems like the world is coming to an end. It hasn’t. And for some strange reason, the financial markets go even higher than the last time. And it is not “different his time”. And you have enough to time to recover from this, because your investment time frame is the rest of your life.
I have I am officially announcing the grand reopening of “World Optimism Headquarters”, a subsidiary of McNamara Financial Services that opens and closes as necessary. Please feel free to call any of our bright and cheery counselors anytime if you have any questions. You probably know what we are going to tell you. Sometimes it just feels good hearing it!
Michael J McNamara, Ph.D., CFP®
CERTIFIED FINANCIAL PLANNERTM