Three Investing Tips That Will Serve You Well in 2018
As we approach a new year, it’s common to think about life goals and how we aim to achieve them. Here are three simple ideas you can take into 2018 to improve your chances of investing well.
My wife’s Grandma Etta frequently says: “Life is good.” It’s a simple dose of wisdom, but I appreciate the reminder.
A simple fact to remember about stocks is: they go up more often than they go down. And the longer you extend your time horizon, the better the probability for a positive result.
Next time you run into a perma-bear, remind them: “Stocks are good.”
Also, boldly proclaiming ‘Economic Armageddon’ may grab attention, but it’s not an investment process. U.S. economic cycles vary in duration and magnitude. At some point, this one will end. Rather than overly fret about it, you can choose to see the glass half full. Expansions are more common than recessions, so this mindset will often serve you well.
It pays to be optimistic about the market and economy over the long-term, but that doesn’t necessarily mean you should put blinders on in the short run.
As we prepare to enter 2018, here are a few sobering facts to be mindful of:
- Market volatility presently hovers near a 50-year low
- U.S. stocks are up 9 years in a row, and every month this year
- Goldman Sachs found in November that stocks, bonds and credit were all the most expensive since 1900
Investing conditions were uniquely favorable in 2017. Celebrate that. However, don’t expect such an environment to persist indefinitely.
From my perch, investor sentiment has grown overly complacent. I’m trimming risk to position for a less friendly market backdrop. Even long-term bulls can still risk manage a cycle.
“The less prudence with which others conduct their affairs, the greater the prudence with which we should conduct our own affairs.”
Don’t let politics rule your portfolio
Most of us have political biases, and that’s ok. We just don’t want such biases to negatively affect our investing lens.
I know folks who avoided the market when President Obama was elected. That was a mistake. An epic bull market began shortly after he took office on January 20, 2009.
I also know folks who wanted to sell all their stocks right after President Trump was elected. That would have been a mistake as well. U.S. stocks are up every month since the election.
Here’s the deal: Mr. Market is not a Democrat or Republican.
Since 1853, the total cumulative returns when Democrats and Republicans have occupied the Oval Office are very close (1,340% compared to 1,270%). Meanwhile, every President since Herbert Hoover saw a double-digit percentage drawdown in stocks occur on their watch.
To be clear—I’m not saying politics have zero influence on markets. Policy decisions matter.
Just remember there are also macro variables outside of politics which impact the trajectory of an investment cycle. For instance, I’d argue stocks are not up in 2017 because Obama left office, or because Trump became President. More critical is the fact that corporate earnings rose sharply amid a goldilocks interest rate environment.
If the principles outlined here sound like simple virtues you could apply to most years—you’re right! They are.
Wishing you and your portfolio a happy—and healthy—2018.