The worst yearly start for U.S. stocks ever – even worse than scary years like 1929, 1987, 1974, 2000, and 2008 – should get your attention. If you’ve been hiding underneath a rock or hibernating in a cave-like dwelling, it’s time to come out. “A little sunlight is the best disinfectant,” as Judge Brandeis might say.
Most global stock yardsticks from China to Japan and even the United Kingdom have crashed 20% or more. Thankfully, the Dow Industrials, Nasdaq Composite, and S&P 500 are not yet in a bear market. That’s the good news. The bad news is since the average investor (both amateur and professional) underperforms the market, it’s safe to say the typical investor is doing much worse versus the 7% to 10% losses already experienced by U.S. stock benchmarks over the past 6-months.
What does it mean?
It means the pathetic rhetoric that investors should “do nothing,” “stand still” or “hold the course” is really bad advice.
Think about it this way: Will a misaligned portfolio suddenly fix itself because a person promises themselves to be extra diligent and patient? Will a 20-year time horizon or longer instantly become the magical fix for a person with the bad habit of buying the wrong assets at the wrong prices? Will saving even more money than they’re already saving automatically convert people into becoming truly great investors? Who besides fairyland believing experts buys this propaganda?
Now, let’s examine four concrete reasons when “staying the course” is absolutely something you should never do.
Reason #1: If the performance of your investment portfolio is significantly worse vs. a blended benchmark of index ETFs that closely resembles your asset mix over a relevant time frame.
Reason #2: If the cost of your investment portfolio is considerably more vs. a blended benchmark of index ETFs that closely resembles your asset mix.
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