As the U.S. moves through its political transition, increasing attention will turn toward potential policy changes and the effect that they may have on the broad economy. As investors we often find ourselves seeking out as much information as possible. What is harder to come to grips with is admitting that there are many things we can’t know about the future. After all, nobody wants to feel like an uninformed investor!
We recently read a compelling post by Ben Carlson, a financial professional whom we have previously cited, that discusses investor expectations and candidly acknowledges what we do and do not know. For instance, we know that the stock market has rewarded long-term investors in the past, but we do not know exactly how strong those returns will be in the future. We also know that the price that we must pay for investing in the stock market is experiencing periodic bouts of volatility. Sometimes that volatility is mild (such as the short drop in markets after Brexit) and sometimes it is severe (such as the 2008 financial crisis). Although we don’t know exactly what type of volatility we may face in any given year, we can say with some confidence that stocks will experience volatility at some point during our investing journey.
Carlson’s argument that we should embrace what we do not know reminded us of something Warren Buffett once wrote to his shareholders: “After 25 years I have not learned how to solve difficult business problems. What I have learned is to avoid them. To the extent that we have been successful, it is because we concentrated on identifying one-foot hurdles that we could step over rather than because we acquired the ability to clear seven-footers.”(1) In investing, the seven-foot hurdles are tantamount to timing the ups and downs of the market perfectly. The one-foot hurdles are making sure that we are prepared for volatility to occur and avoiding poor decisions when it does happen.
One of the best things that we can do as investors is, first, to acknowledge that volatility will occur so that we are not off guard when it does and, second, to remember that volatility is the necessary risk that we must assume in order to generate positive, long-term returns. Although a diversified investment plan helps your portfolio to weather episodes of equity market volatility, it is just as important to prepare mentally for those events so that when they occur we remain committed to the long-term return potential of our stock and bond investments.
Our goal at Sage is to construct your portfolio to take advantage of risks and opportunities in the market, and also to provide ongoing guidance to you when volatility surfaces. If at any time you would like to talk to us about your portfolio, please reach out to us directly at 484-342-4400.
The information contained in this report has been obtained from sources we believe to be reliable but cannot be guaranteed. Any projections, market outlooks or estimates in this letter are forward-looking statements and are based upon certain assumptions. Other events which were not taken into account may occur and may significantly impact our opinion. Any projections, outlooks or assumptions should not be construed to be indicative of the actual events which will occur. These projections, market outlooks or estimates are subject to change without notice. Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product or any non-investment related content, made reference to directly or indirectly in this communication will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. You should not assume that any discussion or information contained in this communication serves as the receipt of, or as a substitute for, personalized investment advice from Sage Financial Group. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Sage Financial Group is neither a law firm nor a certified public accounting firm and no portion of this communication should be construed as legal or accounting advice. A copy of the Sage Financial Group’s current written disclosure statement discussing our advisory services and fees is available for review upon request.
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