Whether you are closely monitoring the NASDAQ, Dow Jones or S&P 500, as an investor you likely have experienced periods where the ups and downs of the market have caused you to question if your equity holdings are appropriate.
While financial news headlines can influence an investor’s emotions and, in some cases, cause impulsive short-term decisions, it is important for high-net-worth individuals to consider how equities fit into a comprehensive wealth management plan.
Have a Plan
A comprehensive wealth management plan starts with clearly defined goals. When you feel compelled to take action, first take time to review your goals and determine how those actions fit into your overall plan.
Reviewing long-term goals can help you determine if short-term emotions and discomfort are merely serving as distractions to your long-term plan.
Having an investment plan in place to meet both short-term demands and cash flow needs affords investors the ability to ride out short-term market fluctuations while allowing longer-term investments to remain invested.
At Welch Hornsby, our advisors work alongside our clients to construct portfolios through the lens of their specific financial goals and needs.
Just as it is vital to have a keen understanding of your long-term goals, it is also important to understand the risk you are taking in your investment portfolio. Do your long-term goals require a risky portfolio or can you accomplish your goals with a more conservative portfolio?
We believe investors should understand how much risk they are taking in their portfolios, why they are taking risk, and the tradeoffs of the risk/reward relationship as it relates to their specific investment plan.
Balancing an investor’s need to take risk with an investor’s desire to take risk can empower them to stick with an investment plan over various market cycles.
According to data from J.P. Morgan Asset Management, since 1980 the average intra-year drawdown of the S&P 500 is 13.9%. Despite this average, the majority of years have ended with positive returns.
This data shows that the long-term “stock-like returns” that equity market investors desire come at a price. That price is the emotion and discomfort associated with the short-term ups and downs of the market. As an equity investor, are you willing to ride out the day-to-day ups and downs for the prospects of higher future returns?
In many cases, it is advisable to be patient and consider the long-term implications of short-term thinking. As recent data shows, investors should focus their attention on the long-term advantages of equity investing, rather than focusing on the market ups and downs that vary day-to-day and week-to-week.
If you would like to learn more about managing equity investments and how this component of your investment portfolio is integrated into a greater wealth management strategy, contact us today.
The information and data contained herein has been obtained from sources believed to be reliable, but is in no way guaranteed by Welch Hornsby as to its accuracy. Opinions and projections are as of the date of their first inclusion herein and are subject to change without notice to the reader. As with any analysis of economic and market data, it is important to remember that past performance is no guarantee of future results.
Written by Alan Bishop, CFA, CFP®