Do not become complacent.
Investing isn’t all that different from any other endeavor in life. If you choose to manage your own portfolio, it requires time, dedication and education to be successful. One of the most important things investors can do is avoid becoming complacent, especially when the market is performing well.
While a bull market tends to bring optimism, investing isn’t going to be all unicorns and rainbows all the time. There will be market swings, prices may fall, dividends may be cut and returns are never guaranteed. You’ll still need to manage your cash flow responsibly and prepare for periods of uncertainty.
Approaching the market and individual investments with realistic expectations can also help prevent disappointment, even when results are relatively good. Investors who set exceptionally high expectations may find themselves dissatisfied with returns that are actually quite reasonable.
Historical market performance can provide useful perspective. Although investors have experienced several strong periods of growth over the past decade and beyond, the market has also faced significant downturns. Those who have only invested during periods of rising prices may not be fully prepared for the challenges of a prolonged bear market or recession.
Expecting annual returns of 15% or more on a consistent basis can create unrealistic expectations compared with historical long-term market performance. When markets eventually decline or returns fall short, investors with those expectations may be more likely to become discouraged or make emotional decisions.
The key is to develop a healthy investing mindset, remain disciplined and understand that market fluctuations are part of the process. Taking a long-term approach and maintaining realistic expectations can help you navigate both the highs and lows of investing.
At the end of the day, we believe a healthy mindset is one of the most important tools for becoming a successful investor.
Now may be a good time to get a second opinion on your asset allocation. Call 1-800-MONEYSHM to arrange a complimentary review.
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