The Demise of an Investment Portfolio – Emotions and Market Timing

Forecasting the short-term movement of the stock market and trying to time the market is fruitless.  As in all areas of our lives, we can’t control what life throws at us but we can establish a defensive position to best deal with a variety of outcomes.  When it comes to our investments, we accomplish this through diversification, dollar cost averaging, maintaining an emergency fund and staying the course.   We need to fight the natural inclination to make financial decisions based on emotions.   Don’t forget that the stock market is counter-intuitive.  Generally, the best time to buy is when things seem really bad and the best time to sell is when things seem the brightest.  But then again, we just never know.   It is easy to get caught up in the fear or euphoria of the moment.  But, keep in mind that emotional reactions to the market can have a devastating impact on your portfolio.  The stock market is a long-term investment and we need to avoid reacting to short-term events.

Proof of this can be seen in a Dalbar study conducted in March of 2010 for the time period of 1/1/90 – 12/31/09.  During this time the average return in the equity market was 8.8% but the average return for the individual investor was only 3.2%.  This discrepancy is a result of investors trying to time the market or reacting emotionally to financial news and events.  Below are two quotes that sum this up very well.

“Far more money has been lost by investors in preparing for corrections, or anticipating corrections, than has been lost in the corrections themselves.”

-Peter Lynch, author and former mutual fund manager with Fidelity Investments

“The idea that a bell rings to signal when investors should get into or out of the stock market is simply not credible.  After nearly fifty years in this business, I do not know of anybody who has done it (time the market) successfully and consistently.  I don’t even know anybody who knows anybody who has done it successfully and consistently”

– John Bogle, founder of Vanguard Investments

About the author

Jane M. Young, CFP®, EA, MBA, CDFA

Jane M. Young is a Certified Financial Planner and co-owner of Pinnacle Financial Concepts, Inc. and Divorce Solutions, Inc. She has been a financial planner since 1996. She is also enrolled to practice before the Internal Revenue Service. Prior to becoming a financial planner Jane held several management positions at Digital Equipment Corporation and Quantum Corporation, where she worked for 14 years. Jane holds a Bachelor of Science degree in Business Administration from the University of Colorado and an MBA from the University of Colorado. She has also completed the two year Certified Financial Planner Professional Education Program with the College for Financial Planning.

Jane is very active in the community. She is the immediate past president of the Rotary Club of Colorado Springs and a past president of Leadership Pikes Peak. She is a graduate of the Leadership Pikes Peak class of 2004. She is a past president of the Financial Planning Association of Southern Colorado and a past president of the Pikes Peak Chapter of the National Association of Women Business Owners. Jane is also a member of the University of Colorado at Colorado Springs, College of Business, Alumni Leadership Team. Jane is a graduate of the Leadership Program of the Rockies class of 2009 and a graduate the Colorado Springs Leadership Institute class of 2011. She is also a member of the Estate Planning Council and Artemis. Jane was selected as a 2010 Woman of Influence by the Colorado Spring Business Journal.

As a fee-only financial planner Jane is a member of the National Association of Personal Financial Advisors, the Financial Planning Association, the National Association of Tax Professionals and the Alliance of Cambridge Advisors. She has been quoted in several local and national publications including The Wall Street Journal, US News and World Report, Consumer Reports, Investment News, MSN Money, Kiplinger Magazine, Financial Advisor Magazine, Bankrate.com and the Colorado Springs Business Journal. She also works as a volunteer instructor to new advisors with the Alliance of Cambridge Advisors and has worked as an adjunct instructor at the University of Colorado at Colorado Springs.

Jane is from St. Louis, but grew up in Colorado Springs. She enjoys skiing, golfing, traveling, hiking, painting and learning to speak French.

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