The Markets Can Be a Great Source of Wealth-Building

July 1, 2022 | by V. Henry Astarjian | Posted in Blog

People who are saving and investing for retirement have a tough investment environment to deal with at the moment. There is a lot of uncertainty about inflation, interest rates, and the direction of the economy, among a host of other things.

Investor anxiety is made even worse by the sudden and persistent drops in the value of their stocks since December. As nerve racking as the market’s declines may be, it’s always best to keep in mind that the stock market is cyclical, up now, down later, but overall trending higher over time. In fact, the market spends most of its time going up, not down. Relatively speaking, corrections and bear markets tend to be shorter than bull markets. That fact alone, should help investors sleep better at night.

My most important advice to investors now is to stick to your knitting. If you are a long-term investor, don’t become a short-term trader just because the market has gone down and you feel nervous. Do what has worked well for you over the years rather than trying now to tweak your strategy or to change your style of investing in order to suit the moment. Remember that over time the stock market’s volatility, including its many corrections and bear markets, provide investors new opportunities to buy their favorite stocks at lower prices.  

When markets are in turmoil, it’s normal for investors to begin questioning their investment approach, especially if they are newer investors and have not yet settled on one approach or another that works for them. That’s often when doubt sets in and losses pile up. Generally speaking, investors make one or more mistakes during times of market turmoil which they should avoid if they possibly can.

The list of mistakes can be long, but here are a few key ones.  

Changing strategy to find an approach that seems right for the moment. Many long-term investors suddenly become short-term traders when the markets become highly volatile, as they have been since about December, 2021. Most investors would be far better off if they think long-term and stop trying to time the short-term moves in stocks. There are always stories of long-term investors suddenly selling everything when the market starts to fall, only to have trouble psychologically to get back in when a correction or a bear market is over. The timing seems uncertain for them. Should they buy, or should they not? These investors have to make two correct decisions, one decision on when to get out, and another on when to get back in. That’s a pretty tall order for most professional portfolio managers let alone for the average investor who has a day job in something other than investing.

Seeking the opinions of others who may seem to know more about investing than they do is another common mistake. Unfortunately, this often involves asking for guidance and clarity from a trusted friend or a relative who may be just as unsure about the market’s future prospects. The danger of course is that investors can be thrown off course by unintended and misguided advice. 

Assuming things are different this time. In truth, there is rarely anything new in the investing world. Yes, the specific circumstances of each correction or bear market may be different, but ultimately the prospect for corporate earnings growth along with stock market valuations drives the market up or down. Investors who focus on these two factors are better served than if they assume that new factors require a completely new approach to investing.   

Being impatient. This is perhaps the investor’s worst enemy and probably comes from a lack of understanding about what stocks are and how they work. Unlike much popular thinking, stocks are not casino chips They are ownership interests in real companies. These real companies have real people working in them and they operate on a daily basis. They  produce sales and earnings that are reported to investors on a quarterly and annual basis. This is the normal cadence of corporate results in the United States and the pace at which the stock market operates. Impatient investors can’t alter that pace.  

Investing profitably over a period of years is a challenging task. With a long-term perspective, a solid investment plan, lots of patience, and a steady hand, the markets can be a great source of wealth-building.

Disclosures: Waterstone Advisors, LLC is a Massachusetts registered investment advisor. Registration with securities authorities does not imply a certain level of skill or training. Investing carries risk of loss, including loss of principal. The information and data presented in this note have been compiled from publicly available sources that are believed to be reliable. However, their accuracy is not guaranteed. Waterstone Advisors LLC does not guarantee the performance of the securities or strategies discussed or analyzed in this note. An investment in these securities or strategies may result in complete loss of principal. For additional information and disclosures, please see our ADV Part 2 (the “Firm Brochure”) in the Our Approach page of our website at  www.waterstoneadvisorsllc.com , or contact us at 978-828-2188