Easy in Theory, Hard in PracticeSubmitted by Trace Wealth Advisors on August 6th, 2019
Investing is easy. If you don’t believe me, just look at this chart of the S&P 500 over the past 40 years:
See? If you hung around long enough, it pretty much went up. As time passed, your assets grew in value, you became wealthier, and everyone lived happily ever after. Given the benefit of hindsight, there were few events that took place that actually mattered and, in the end, all that really mattered was staying invested through it all. It’s easy to look at the above chart and draw the conclusion that if you just stay in the game, you’re likely to be successful. That’s easy to do in theory, but hard to do in practice.
Consider the period from 2000-2009, commonly referred to as “The Lost Decade” in US equities. Here’s what the same chart above looks like if we isolate that period:
Given your current circumstances and plan, could you have hung around through that entire decade, only to watch your equity portfolio go down in value? What would you have done after three years when your portfolio was down by roughly 1/3? What about Year 8 when it was back in the black only to see it almost cut in half again? Yes, the market enjoyed an incredible rally from the end of 2009 until now but you had no way of knowing that then. Would you have bought into a failing banking system and an economy on the brink of disaster? It’s easy in theory but hard in practice.
Back to our original chart, see that tiny little blip down marked by the red arrow?
One year later and stocks had recovered that entire loss. Would you have bought in the morning of this headline? It’s easy in theory but hard in practice.
Tariffs, currency manipulation, negative interest rates, and high valuations are the concerns of the day. Now is your chance to put your theories into practice.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Investing involves risk including loss of principal. No strategy assures success or protects against loss.