It is no question that staying invested during down-turns in the market can be a stomach-twisting endeavor for some people. The unfortunate thing is that most of these people tend to be the most scared and begin selling very close to the actual bottom. In fact, that is what creates the bottom – when there are no more sellers, prices are low and begin to look like bargains to the buyers! The technical term for this is “Capitulation”.
The Merriam-Webster dictionary definition of Capitulation is the following, “the act of surrendering or yielding”.
When the masses of mom & pop investors have simply had enough of watching their accounts decline in value, they surrender to the markets. When enough people do this, the cycle begins to turn, and a new upward trend emerges.
Those of you who have worked with The Wealth Strategies Group for any amount of time know that the money we invest is “Five Year Money” i.e., money that you will not need to touch or worry about for at least five years (Read it Here). This is because it is very likely that five years from when the money was first invested, it will have increased in value, regardless of the volatility that happened in between.
The graphic above demonstrates the returns that folks “give up” by not being invested on certain numbers of “best days”. If only I had that crystal ball to know when the “best days” were going to happen….
But I don’t! No one does! That’s the point.
The key is to stay invested, at least partially, so that you get to participate in these “best days”.
This is exactly what we have done here at The Wealth Strategies Group. Sure, we have held large amounts of cash during the past year, but we have still held a portion of investments. And now I am beginning to slowly and thoughtfully reinvest this cash.
I expect to see continued volatility for the next few months. But, I have $1 that says the next 20% market move is to the upside, not to the downside!
I am interested in your thoughts, comments, and questions!
Brittany N. Jarocki, CFP®
CERTIFIED FINANCIAL PLANNER™ Professional
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. Investing involves risk. Loss, including loss of principal, may occur. No strategy assures success or protects against loss. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.