disciplineThe chart above from Dimensional Fund Advisors is an excellent demonstration of the resilience of the market.  Each event marked on the timeline was accompanied by thousands of articles and TV reports discussing at great length how bad things were going to get and what you supposedly needed to do.  Despite all that noise, the market just keeps powering up over the long term.

Individual investors (that’s you!) constitute the number one threat to their own portfolio.  How’s that?  In the face of market stress and volatility, they usual reaction is some combination of the following :

  • Fleeing into the arms of a charlatan who purports to having predicted it
  • Buying into Black Swan funds and protective products that cap all future upside and cost a fortune
  • Obsessing over hedges after the fact
  • Selling out with big (permanent) losses and sitting in cash
  • Freezing 401(k) contributions or having retirement cash allocated to money market funds
  • Excessive trading
  • Planting a flag and being unwilling to publicly change our minds in the face of new evidence
  • Throwing money at bizarre alternatives like coins, bars, bricks and bullion which have no proven ability to fund a retirement
  • Conflating political views with investment expectations

According to adivsor Josh Brown, “every one of these things is extremely detrimental to our financial health. In some cases, the damage could be irreversible. Nothing kills the long-term returns of a portfolio like throwing away the playbook in the heat of a market crisis.”

Source: TRB