Investors have been through a lot over the past six months. While the recent government shutdown and the threat of a default loomed large, let's not forget about the continuing turmoil in Syria that brought us to the brink of war. Things have not been tranquil on the home front either. On July 18, Detroit filed for bankruptcy. It was the nation's largest public-sector bankruptcy.
Investors also were confronted with the mantra of "sell in May and go away." Pundits noted that the S&P 500 has "moved lower 6 of the last 7 years from its close on May 31st over the next month or so." This fact, coupled with the run up of the S&P 500 through May, led some to believe the market was "overbought."
These events and others created the perfect storm for the securities and financial industries to spring into action, stoking fear and anxiety. On September 30, the day before the shutdown officially began, Henry Blodget opined that there was a "decent chance the stock market will crash in the next year or two -- maybe dropping 30 percent or more." I responded with this comment on my social media pages: " ... and there is a 'decent chance' the market won't crash. Don't base your investing on 'decent chances.' "
The possibility of war with Syria stimulated a flood of terrible advice. One article attempted to explain why defense stocks were "selling off" ahead of planned military action in Syria. Another discussed why war in Syria "should make you sell your stocks."
Many investors, buffeted by conflicting views and anxious about market uncertainty and volatility, no doubt succumbed to the pressure and reduced or eliminated their exposure to stocks. This conduct is typically justified by "waiting until things settle down."
How did the markets react? The S&P 500 is at an all-time high. It's up almost 8.5 percent since it closed April 30. I wonder how many investors achieved anything close to that increase in value in their personal holdings.
Here are some lessons you can learn from these recent events:
Don't just do something, stand there
Intelligent, responsible investing means having a investing plan and sticking to it. The antithesis of this is reacting to the news of the day and attempting to predict the direction of the markets and the impact of future events on your portfolio. You can't control (much less predict) the future. You can control your asset allocation, the fees you pay, the costs you incur and (to some extent) the tax ramifications of your investments. Focus your attention on these areas. The most common error I see investors make is the need to "do something" when "doing nothing" is the prudent course.
Ignore the "investment pros" and much of the financial media
The securities industry profits when you "take action." Action generates fees and commissions. If you want to ruin your broker's day and enhance your chances for retirement with dignity, send him or her this email: "Effective immediately, I want a globally diversified portfolio, in an asset allocation suitable for me, that will be invested exclusively in low-management-fee index funds."
Stop the quest for an investment guru
Particularly in troubled times, it is tempting to look for an investment guru who can provide soothing advice. Recognize the irrefutable fact that no such person exists. In the investment world, there are many who position themselves as having special insights, worthy of consideration. The reality is that no one can predict the future. Remember that fact the next time you read or watch a so-called guru giving advice about what you should do with your portfolio in response to whatever crisis exists at the time.
An entire industry is premised on an expertise that doesn't exist. Worse still, that industry has a vested economic interest in keeping information from you that would permit you to capture the returns of the global marketplace, which can be easy to attain.
Once you understand the interests of much of the financial media and the securities industry are inconsistent with your economic best interest, you will be in a far better position to maximize your returns for the amount of risk suitable for you.
Dan Solin is the director of investor advocacy for the BAM ALLIANCE and a wealth adviser with Buckingham Asset Management. He is a New York Times best-selling author of the Smartest series of books. His next book, The Smartest Sales Book You'll Ever Read, will be published March 3, 2014.
The views of the author are his alone and may not represent the views of his affiliated firms. Any data, information and content on this blog is for information purposes only and should not be construed as an offer of advisory services.