When we closed the books on November, three measuring sticks of the stock market were all up double digits for the month. That would be the Nasdaq, S&P 500 and the most frequently quoted Dow Jones. In fact, the DJIA had its best month since January 1987.
Normally, I don’t like to look at long-term investments based on a 30-day stretch. But there are many investment lessons that can be taken from November.
First, I want to reiterate that diversification includes stocks outside the United States, various types of domestic and foreign bonds, and even such alternatives as real estate and hard assets. In other words, diversified investing is far more than just assorted domestic stocks.
Having a financial blueprint with a measurable goal is also critical to long-term investing. Where investors tend to get hurt is when they let their emotions take control and alter or abandon their long-term strategies.
Some investors often attempt to rationalize their decisions by “waiting and seeing” until after a certain event or situation occurs.
When we began acknowledging the COVID-19 epidemic in March and the markets took a substantial downturn, for example. Many abandoned their falling investments out of fear and moved into cash.
The thought was to return to their investments when the pandemic was over. The problem was that many investments began to rebound long before COVID-19 was somewhat controlled.
Another lesson to be learned from this short-term November snapshot is not to let politics take charge of your portfolio. Some people chose to keep their investments on the sideline until after the election.
Many who took the wait-and-see approach likely missed most of the November surge. They missed an opportunity by rationalizing and moving away from their strategy. If you have a financial blueprint and take it offline, it’s often difficult to get it back on.
Study after study has shown that it’s nearly impossible to time the markets. If you’re worried about your portfolio, you should probably be discuss it with your advisor rather than let your emotions take over.
It’s nice to have an advisor or family member that can help you through difficult times. And this current Covid crisis with so many people weary of isolation is certainly one of those times.
As we age, it’s not unusual to experience a decline in mental acuity. When that happens, a trusted advisor can help prevent you from making poor financial decisions. Even though well intentioned, such decisions can divide a family for years.
It makes sense that when you’re on top of your game and mentally sharp, you’re more likely to keep your emotions from derailing your financial plan. You don’t want to throw away a lifetime of prudent investing and planning by making some poor financial decisions when you’re ill or just mentally slowing down a bit.
That’s why later in life, when diminished mental capabilities are more likely, having a trusted advisor to help keep your financial blueprint on track is a good idea. You can rest assured that your funds are being disbursed according to your plans.
To use a baseball analogy, it’s important to have a relief pitcher warming up in the bullpen and ready to help you out when the need arises.
November has shown us that can happen at any time.