A month, a year, even 10 or 20 years are short periods of time in the entire scheme of things.
Just as the Grand Canyon wasn’t created in a day, neither can a successful investment strategy be measured in the returns of one week, six months or even three years.
It’s prudent to give it time, perspective, and discipline. To view and invest broadly, not myopically.
A few words about lower rates from the Federal Reserve in June caused a 500+ point rise in the Dow Jones Industrial Average (DJIA). However, when the Fed reduced rates in July, the DJIA dropped 300+ points.
It is hard to know which way is up. In contrast, if you’ve hiked in the Grand Canyon, it’s clear which way is up and which way is down.
The Boston Globe had two headlines from different articles on its website after the Fed cut:
“Fed Cuts Rates by Quarter Point, Signals Potential for More” By Christopher Condon
“Dow Falls more than 300 points as Hopes for Further Rate Cuts Fade” By Alex Veiga
Which one do you want to believe? Are rate cuts going away or will there be more? Depending on which article you opened, you would get an entirely different perspective.
There has been a spate of negative economic news covering trade, tariffs, tech-antitrust, soft payroll numbers, interest rates, elections, recession fears, Brexit, and climate change.
Not one of those issues above will be THE market determinant going forward. Rather whatever happens in the economy will be driven by some combination of all the issues. In the same vein, not one single market or one single factor alone will drive investment portfolio returns. Growth and value, U.S. and international, bonds and real estate, risky and lower risk assets, all combine to make a globally diversified strategy appropriate for the long term.
While it would be nice to have investment returns running like a river, flowing infinitely and placidly in one direction with no worries, we know that’s not the case. Sometimes even a river may have rapids or meander in an unexpected direction.
We recognize that, in the short-term, anything can happen. Volatility is a normal and expected part of investing. In fact, we build volatility into your financial plan. Reacting to volatile markets by selling or reducing positions that have gone down in value may hurt portfolio performance more significantly than staying the course. We continue to believe that globally diversified portfolios that include equities, fixed income and other asset classes can provide stability and strength for investors over the long-term. Please reach out to your Modera advisor if you have any questions.
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This article is limited to the dissemination of general information about Modera’s investment advisory and financial planning services that is not suitable for everyone. The case study represented here is hypothetical in nature and is used for illustrative purposes only. It should not be construed as a testimonial. Each client’s situation and circumstances are different, and the foregoing should not be relied upon as legal or financial advice for one’s individual circumstances. Nothing herein should be interpreted or construed as investment advice nor as legal, tax or accounting advice nor as personalized financial planning, tax planning or wealth management advice. For legal, tax and accounting-related matters, we recommend you seek the advice of a qualified attorney or accountant. This article is not a substitute for personalized investment or financial planning from Modera. There is no guarantee that the views and opinions expressed herein will come to pass, and the information herein should not be considered a solicitation to engage in a particular investment or financial planning strategy. The statements and opinions expressed in this article are subject to change without notice based on changes in the law and other conditions.