Tips for Investing Success

In the last ten full calendar years there have only been two negative years in the stock market. That’s hard to believe, but it’s true. The reason it does not feel like it’s true is that those two negative years were fairly bad. And even the positive years have been racked with volatility. The return of the S&P 500 during those 10 years was +2.9%. It’s been a tough time.

It’s natural to extrapolate what is happening now into a prediction for the future, and admittedly 10+ years is considered “long-term.” However, this abnormally bad time period for stocks does not need to be looked at as the new normal or as marking a new secular trend for stock returns. Rather, we think it should be looked at as a wild anomaly. It is something that should not be expected to persist.

In the meantime, what can you do? It’s well established that we cannot control the movements of the stock market. Not only that, we cannot predict the movements either. This means that any effort to ratchet up or down equity holdings based on the economic outlook is futile. In fact, study after study shows that it’s a good way to lose more money.

Here are my top five steps to long-term stock market success:

1. Know the difference in short-term needs and long-term needs. Any money needed in the next 5+ years should be kept in stable, liquid assets, such as cash, CD, money market, or potentially ultra-short term bond funds. If your investment nest egg is for retirement is for long-term purposes, realize that what happens in the market today is less important than saving for retirement. Don’t stop saving because the market is down. It is a buying opportunity; stocks are cheaper today than they were six months ago.

2. Pay down debt. If you are young, focus on variable and high-interest rate debt (over 7% or so), but don’t worry about paying down your low, fixed-rate mortgage or student loans outside of your regularly scheduled payments. If you are in or nearing retirement you can consider putting extra money toward all debt.

3. Save, save, save. You should be saving from the first day you earn a paycheck until the last day you earn a paycheck. Increase your savings every year.

4. Choose the right investment allocation that works for you in both up and down markets. Don’t get excited when the market goes up and decide you can handle more equities. Likewise, don’t get scared when the market is going down and decide you need more fixed income.

5. If you are retired and spending from your portfolio, make sure you understand you and your advisor’s plan for how you will manage portfolio spending during down markets. You may need to consider whether you can reduce spending after a particularly bad time period. Portfolio dividends and fixed income investments can also be used to weather these times.

We want success for all of our clients. If we could predict or control stock market returns, we would. But we see it as our job to help you choose the proper asset allocation, avoid life changing financial mistakes and develop an appropriate savings and spending plan. Once that is done we make modest changes to your portfolio to maintain the proper balance and stay invested through good and bad times. We are confident that these are the rights steps to take to help you secure your financial future.


Harli L. Palme, CFP®, CFA

Financial Advisor

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