Back to School and Snore Your Way to Investment Success

I hope you are enjoying these last days of summer and that you have had the chance to take a great vacation! For me, the past few weeks has brought another “Back to School” season for the family. But this time around, the school year’s start is much different!

back-to-schoolInstead of attending more high school, my twin sons, Daniel and Benjamin, are now going “Off to School” to start their freshman years at the University of California, Davis and at the University of Illinois, respectively.

I admire the dedication they have shown over the years and especially how they gracefully navigated the very competitive college admissions environment during their Senior year! As I reflected on their hard work in recent weeks, their journey has reminded me that learning is an on-going process that takes place inside and outside the classroom.

This idea is certainly applicable to just about everything in our lives, even personal finance and investments. And the financial world sometimes provides ample opportunity to “test” how well we have learned our lessons!

Recent conditions in the investment markets, for example, might be providing investors with the equivalent of a mid-term exam! During 2015, returns in the broad US stock and bond markets have struggled at times to produce positive returns.

And in recent days, of course, global equity markets have been much more volatile, temporarily serving up a 10% correction before rebounding and paring some of the losses. The past few weeks have certainly been very different from the tame price fluctuations of the past few years.

roller-coasterThere is also no shortage of economic uncertainty around the world. Investors are trying to digest a potential rise in US interest rates later this year, the rapid decline in oil prices, increasing volatility in the Chinese stock market, and other economic and political worries.

So, the weeks or months ahead might test the resolve of many investors. The “exam” may not be multiple choice, but such a period might be a good assessment of whether one is truly a long-term investor.

Staying the “course” with your investment plan might increase the odds of long-term investment success. If the markets move back into correction territory, and you stick with your plan, you will have “aced” your investment midterm and will be on your way to the coveted diploma!

On the other hand, you could try to predict short-term market movements, sell before another possible market decline and then buy back in at lower prices. But objective studies of market timing have shown that they might not be successful over a reasonable period of time and that they could potentially lead to less optimal returns.

Even the world’s greatest investors cannot reliably forecast short-term market movements, and they happily admit this fact. Here are a few opinions on the subject from some of the best investment “professors” of our time:

file000986451810Warren Buffett, known for holding stocks like Wells Fargo Bank and Coca Cola for decades, once wrote, “We continue to make more money when snoring than when active.” Peter Lynch, one of the most highly regarded mutual fund managers of his era, said, “Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves”.

The logic behind not trying to time the financial markets is compelling. Still, I recognize that it can be difficult to stay on track. To help you through these volatile times, I want to continue my practice of providing relevant financial education articles and to inspire you to make sound financial decisions! Here are a few that might help you navigate the challenging moments:

Should You Worry About China Stock Market Volatility: Many investors are wondering whether China’s stock market volatility might slow down China’s economy and eventually global growth prospects. Should you make any portfolio changes? Read more…

Five Steps to Tame Financial Stress: Studies show that most of us get stressed about money some of the time. Here are some tips that can help you through those tough moments! Read more…

Can You Count on Dividends for Reliable Income? With fixed income investments offering low yields, it is tempting to think about using dividend paying stocks as a substitute for bonds. Here are some issues to consider before you take the plunge. Read more…

Finally, use this blog as a reminder to reflect on your own situation. If you are uncomfortable with the recent market volatility, or are unsure whether your investments are aligned to your long-term financial goals, please email bill.pollak@lpl.com or call me at (925) 464-7057. I would be happy to help!

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. Investing involves risk including potential loss of principal.

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