Stock markets are unpredictable. Jason Zweig is a writer with the Wall Street Journal. His article this month is worth reading. He shares the story of a financial planner who has three new clients with large amounts of cash. They sold their stock holdings during 2008 / 2009 and never got back into the market. “Only this year, with stocks again near record highs, did they finally get tempted to buy again.” In other words, they are chasing performance and want to buy when stocks are high and sell when stocks are low. Chasing performance means you are acting emotionally and it will cost you. “Buy high, sell low, repeat until broke.” That is the message in this timeless sketch by Carl Richards. Mr. Zweig’s previously cited article mentions several studies that have analyzed the toll chasing performance takes on your portfolio. “Over the long-run, it reduces returns by an average of approximately 1.5 percentage points annually.”
Ron Lieber is a writer with the New York Times. His article this month also does a great job of putting volatility into perspective. The time to review your portfolio and to be honest about what kind of loss you can handle is now, not when the next bear market hits. Stay focused on what you are trying to accomplish in the long-term and trust the decisions you made during calmer times.
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