3 Considerations If You’re Investing for Growth in this Volatile Market & 1 Idea You’ll Likely Never Hear from a Financial Advisor
Let me start by stating that my last blog was geared towards those preparing or living in retirement. Those were adjustments I made to my Mom’s account and client's over the age of 55. So now let me give you input on adjustments I’ve made to my account and clients looking for more growth.
I’m 34 years old, I’ve been investing since I was 18 and the first stock I ever purchased was Apple. I had just bought a MacBook for school, loved their technology and had some money left over, that was the basis of my decision. Looking back it was obviously a great decision but how I came to that decision wasn’t the smartest.
Since then I’ve made other great investment decisions but try to learn from the ones that have been duds. One of the things I’ve learned from some of the greatest investors of our time, Ray Dalio, Warren Buffet, Peter Lynch, just to name a few, is establishing rules based investing. While I’m not going to cover the rules that I follow today I think it’s important to note that professionals make investment decisions differently when compared to the average Joe or Jane.
The S&P 500 has experienced 287% return over the last 10 years (that’s including dividends reinvested) while the rest of the world has lagged significantly. Below is a chart from the Wall Street Journal of the S&P 500 (black line) compared to the EFA (Broad range of companies in Europe, Australia, Asia, and Far East - blue line) and EEM (Emerging Markets - yellow line).
Historically we tend to see the US outperform for a certain period and then international outperform which creates a cycle of one outperforming the other. I’m not just saying that it’s time to add international because of the vast performance difference but when you take into consideration how strong the dollar has been, compare P/E ratios, and consider future growth opportunity - there is a strong argument to add international and emerging markets to your portfolio if you don’t own much.
If you’re only invested in index funds or basic ETF’s, now could be a good time to look at active managers or multi-factor ETF’s. This can make a significant difference during more volatile markets because rather than riding the roller coaster ride of performance chasers, these investments are in search of true opportunity and value.
Now, not all money mangers and multi-factor funds are created equally so we make sure to do our due diligence when selecting these for client portfolios. If you choose to follow this path make sure to do your homework. Look at track records, portfolio objective, and how they make their investment decisions.
People always ask me when is the best time to invest? My first answer is, when you have the money. My second answer is, when there are market fluctuations. This is logically the obvious answer but psychologically challenging to do. I’m not suggesting that you attempt to “time” the market because the amount of time you’re invested is far more important. But one of the best ways to achieve this is invest on a monthly basis, which is referred to as dollar cost averaging. Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. An investor should consider their ability to continue purchasing through fluctuating price levels. You’re already doing this through your company retirement plan if you have one. If you don’t then consider opening an investment account you can contribute towards.
So don’t fear volatility but get excited about the opportunity it provides!
The last piece of investment advice that I can offer, which I don’t believe you’ll hear from any other financial advisor, is invest in yourself. That could mean furthering your education, building your own business, investing in your health, or enjoying more time with family. The dividends that these investments pay are invaluable, overlooked, and I firmly believe that most people can do a better job here.
Stay Tuned for more information that is educational, actionable, and timely.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. Investing involves risk including loss of principal. No strategy assures success or protects against loss.