By Mark Van Mourick, Special to California Business Journal
Are we at the top yet? Selling near stock market highs and locking in profits is always tempting, especially when the current bull market is one of the longest on record and seemingly puttering out. Yes, this might be the perfect time to sell, however, let’s look at the long term odds first.
According to Check Capital’s research, the Standard & Poor’s 500 Index (S&P 500) has advanced in 78% of the years since 1950 (or about 4 out of every 5 years). Further, 95% of every five years – and 100% of each decade – since 1950 have led to a new high. These statistics are true even though the S&P 500 has had an average of 14.2% annual peak to trough dips. Volatility is normal. While the average S&P 500 annual return has been about 10%, annual returns in the 5% – 15% range surprisingly only happen about 20% of the time so expect big price swings. If your investment time horizon is longer than a few years, betting against these odds is dangerous. But sitting through another multi-year decline is equally unsavory. What to do, then?
The first question to ask yourself is this: “Do I have the stomach to ride through a downtown and not get out of a moving car?” Many people still have scars from the stock market’s last two 50% drops since 2000 because panicking and selling during a downtown – the very thing you will feel like doing – is far worse than the drop itself. History shows that the general stock market has always recovered (although not every individual stock), but it takes fortitude and a disciplined plan to ride out the dips.
Without giving individual investment advice, let’s explore some helpful techniques as you aim to reach your financial goals with your stomach attached.
Neither fear nor greed are good attitudes for investing. Rather, in my 40 years of professional experience, I’ve seen discipline and strategic planning produce not only optimal returns (balancing all investment objectives) but also a pleasant journey. It is in this balanced state where investors can feel confident that their long-term goals will be met despite short-term price movements or the nightly news.
Mark Van Mourick is Founder and CEO at Optivest Wealth Management. Investment advisory services are offered by Optivest, Inc. under SEC Registration and securities are offered through Gramercy Securities, Inc., member FINRA & SIPC, 3949 Old Post Road, Charlestown, RI, 02813, 800-333-7450.