“Don’t trust anybody who thinks they know more than the markets. Instead, trust the markets themselves. Invest whenever you have available funds, stay invested, and, most important, ignore the dire warnings of the so-called experts” – Larry Swedroe
Each year we have access to the annual Investor Behavior Study where they compare Investor performances to the S&P performance (the main benchmark). In 2016, the average Equity fund investor returned 7.26% vs the S&P 500 Index 11.96%. Over a 30 year time frame the average Equity investor returned just 3.96% compared to the S&P 10.16%. That’s a huge difference.
Investors need to remember one simple rule : SET IT AND FORGET IT. It’s natural human behavior to freak out when the market declines, automatically fear losing everything. Historically it has always recovered. We lose when we freak out and sell low. For my five year plan to work, I actually need a market correction in the next couple of years, this will give me an opportunity to buy more at a lower price. When the market recovers, my portfolio will be worth even more.
Over the past two years we’ve had BREXIT, TRUMP, CHINA and now North Korea. The market stumbled and then quickly recovered. I made a mistake last year, freaked out before the election and sold my mutual funds. I was laughing the night of the election when the futures market was down 5%. The following days trading session ended up unchanged. I bought back two weeks later, losing a potential 2% growth. I learnt at that time to NEVER time the market.
Here is the S&P 500 chart since 1993, this is the chart through the dot com bubble, banking crisis, 9/11, Afghanistan, Iraq, Brexit, Trump etc. Whatever is coming in the future, do not worry and see it as an opportunity to buy more at a lower price.
Today we are trading at the all time highs in the 2500 region. The sooner a market correction happens the better, during my accumulation phase I would much rather be purchasing mutual fund shares at a lower price. Invest for the long term and you’ll be fine.
Warren Buffet recently said that when he passes away, he would like his wife to invest in the S&P 500 index. Well, if this is good enough for Mrs Buffet, it’s good enough for me and my kids. The US economy is already globally diversified and I do not like owning single stocks (look at Enron and Lehman), I would rather own all 500 companies in a low cost Index Fund. Vanguard charges 0.04% and I invest in this each month.