We’ve been riding a nice wave the past several years now – one of the biggest bull runs since the Great Depression. That has a lot of people getting excited about equities and piling in. Unfortunately, many have missed a roughly 130% run-up of the S&P 500, since early 2009.
What is worse, many of these people got out of the market in late 2008 / early 2009, when values were terribly depressed. Hundreds of billions of dollars were yanked out of the equity market during this time. Why do we do this over and over, cycle after cycle? Emotions.
“In bear markets, it's fear and panic that take over, and the stomach overrules the head. Stomachs rarely make good decisions.” –Larry Swedroe
Read that quote recently, and love it – a great point to remember when (not if) the next bear market comes along. Bear markets should be viewed as an opportunity to purchase quality merchandise on sale. This all leads to my point: Without commitment to a plan of attack for our investment dollars, we are left to act on emotions. A well-designed plan for your situation should take into account the timing of your likely cash needs, and accommodate your specific risk tolerance or aversion to it. A well-thought-out plan will allow your portfolio to take advantage of market fluctuations, instead of running with the crowd, chasing returns that are already history.