"This Time It's Different" aka The Failed Investor's Four Word Death Song

Every major Bear Market looks different when you are inside it. As Warren Buffett says: “Those who invest only when commentators are upbeat end up paying a heavy price for meaningless reassurance.”

As long term, goal focused, planning driven investors, we stick to meeting our goals with the plan and the portfolio design to go with it. We do not deviate from that because of the news of the day or apocalypse du jour for that matter.

I want to emphasize a couple of fundamental points here: Diversification works, Dollar Cost Averaging works, being a systematic and disciplined investor works.  Continued diversification within your portfolio is the key to reducing the jagged edges of market ups and downs, as well as smoothing out the overall returns. While diversification attempts to protect portfolios from overreacting during periods of crisis, a systematic process like dollar cost averaging attempts to protect portfolios from underreacting during one as well.

What we are certain about is this: In times of crisis, human behavior is consistent through time. Many will panic, overreact, creating enormous volatility, but also significant opportunity. This time feels different; hence, the overreaction.

How does this help? However different this crisis may seem, we can take comfort in knowing that disciplined diversification, and dollar cost averaging will help you remove the emotions while taking advantage of potentially significant long- term opportunities. Dollar cost averaging surely can make a huge difference in this systematic process.

By continuously, putting in monthly investments into your diversified portfolio, you automatically are buying at various price points in the markets. This is known as dollar cost averaging. The beneficial result of this, is that you are on average buying investments at a lower cost than someone who is trying to get in at the bottom with a lump sum. Investing with a lump sum is fine and is necessary in many cases, just as long as you invest and not try to time the bottom.

Diversification of our portfolios addresses the issue of risk/volatility. By having your portfolio in a combination of stocks (growth oriented mutual funds) domestically/internationally, as well as some combination of bonds, and cash equivalents, we can gain momentum without being stymied by the bumps in the road.

Just remember, by staying focused on your long term goals of five years or more, and resisting the urge to panic, you will be well on your way to being successful as an investor following your customized plan of advice.  Keep in mind that the average returns following bear markets have been 52%, 89%, and 132% respectively over the ensuing one, three and five year periods. These returns come from the depths of the bear markets.

Stay positive and carry on- this too shall pass. I am a phone call or email away if you need me!