Time and time again I have emphasized that diversification is a key ingredient in the recipe for long-term investment success. I have also made readers aware that the current uptrend in the financial markets is now more than six years old. In other words, it’s one of the longer bull markets in our nation’s financial history.
To go six years without a 10 percent correction is quite remarkable. To a
certain degree, the investment world is like a living being in that it
periodically inhales and exhales. So, after six years of exhaling,
seeing the markets stop and take a breath shouldn’t be a surprise — or
cause for alarm — for anyone.
There’s no question that the world is facing some serious issues. Some
of them so serious, in fact, that they could potentially light the fuse
and ignite global warfare.
Here at home, even though most investors have seen their account values
appreciate over the past six years, I sense that many feel the economy
still hasn’t totally recovered from the recession.
In a recent column I made readers aware that a dollar dominated world
currency is currently being challenged. Although the effort is being led
by China, even some of our close allies have lent support, including
France, Germany and the United Kingdom.
I won’t go into the ramifications of the U.S. dollar losing its status
as the world’s reserve currency. Suffice it to say that it’s quite
worrisome. That being said, however, there has always been something to
There’s an old saying that successful investors must be able to climb
the wall of worry. I have often referred to it as needing an iron
stomach. Considering the many serious issues around the world, I think
we can add “nerves of steel” to that list of requirements.
Remember, bad news sells. When you turn on the TV or radio, the lead
story is seldom about some great philanthropic event. More often than
not, it’s about a tragedy, crime or some controversial political issue.
I noticed that immediately after the markets plunged on April 17, the
Internet and my email were flooded with disturbing solicitations that
preyed upon fear. I personally was warned of “the coming economic
collapse,” to “cash out now and buy gold,” and to “buy this report to
Stating the obvious, nobody has a crystal ball. As a financial adviser,
when I work with a client to develop a diversified well-balanced
portfolio, I design it with them for the long term.
Of course there are periodic reviews that may result in the plan being
modified or tweaked. It’s essential to follow that course of action
rather than eventually hitting the panic button and changing everything.
Unfortunately, I’ve seen that happen. People abandoning their strategy
and letting emotions take over. Emotions are a dangerous thing for
investors. They often lead to impulsive decisions that seldom work out.
Long-term investors understand that setbacks occur and don’t let
emotions take over.
A lot of money is made off of a person’s fear. I’m sure that many people
responded to the Internet and email warnings after the market drop on
April 17. The fear mongers may have cashed in, but abandoning ship
rarely works out well for long-term investors.