Every now and then the happenings of the market can teach us important lessons. We can improve our investment decisions by learning from the past and heeding correct perceptions.
Let’s go back in time to June 5, 2019. At that time the economy was humming. The S&P 500 was at 2826 and unemployment was 3.5%. Now, let’s assume that I was able to see the future and share with you what I witnessed. My report may have been something like:
Within the next twelve months we will experience a worldwide pandemic that we haven’t seen in decades. States will order citizens to shelter in their home for weeks, countries will close their borders, travel will largely cease to exist, unemployment is going to skyrocket to over 15% and hundreds of thousands of people will die from this virus.
What kind of investment decisions would you have made? My guess is that you would have significantly changed your portfolio, most likely going more conservative if not an outright move to cash. And given perfect foresight, it would have seemed to be a rational decision to make. But it would not have been the correct one.
On June 5, 2020, the S&P 500 was up over 10% from last year – despite the awful pandemic and economic fallout. It is quite an amazing fact.
This is just one, of many examples, why we don’t want to allow forecasts and news to drive our long-term financial decisions. Even if you are correct in selling (market goes down after you sell), you still have to figure out when to get back in. This now becomes the art of guessing/speculating rather than the science of investing.
Sometimes the market moves in line with news; sometimes it doesn’t. It happens on the way up and on the way down. Let’s ensure our financial decisions are deliberate, thoughtful and in line with our plan.
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