Balancing Investor Euphoria With Market Reality

Many social media users share nearly all aspects of their lives, from photos of cute kids and pets to their political views. And now, we even are seeing posts from exuberant investors bragging about their investment returns. For example, consider this social media post:1

“I strived to become a 401(k) millionaire someday, and this week, thanks to years of consistent savings and a long bull market, that goal has come to fruition, at the ripe age of 45.” This message was accompanied by a snapshot of his actual account statement.

Indeed, every investor proud of his or her success should be applauded for diligent and prudent investing over time. However, it’s worth noting that what goes up generally comes down. The question is: When?

If you’ve achieved significant gains over the past few years, we’d like to help you ensure that your current financial strategy still fits within the context of your own goals, risk tolerance and investment timeline. Feel free to contact us for a comprehensive review of your financial situation to help determine the next move to help you pursue your financial goals.

Strong stock market performance is generally attributed to a wide range of factors, including the prevailing policies of the current presidential administration. While fiscal policy can have a near-term influence on investor and business confidence, other contributing factors are more long term in nature. For example, changes in monetary policy may take six to twelve months to impact the financial markets.2

The same can be true for market declines. While an occasional one-day freefall does occur, most of the time a correction, such as the one that occurred in early February, is the culmination of contributing factors over time. In fact, stock market analysts had been predicting a correction for quite some time, so it did not come as a surprise to many in the industry when it happened.3 Moving forward, analysts expect continued volatility that could damper some of those proud moments many investors have shared.4

Even if investors’ exuberance has been dampened somewhat because of the recent market volatility, it’s important to remember what got them there in the first place: Disciplined investing. As such, a stock price slide can present the opportunity to buy when prices are low — further positioning a portfolio for future gains.In other words, perhaps euphoria and prudence can go hand in hand.

1 Sally French. MarketWatch. Feb. 1, 2018. “People are bragging about becoming 401(k) millionaires — and posting their balances to social media.” https://www.marketwatch.com/story/people-are-bragging-about-becoming-401k-millionaires—-and-posting-their-balances-to-social-media-2018-01-29. Accessed Feb. 12, 2018.

2 Oliver Pursche. Kiplinger. March 21, 2017. “The Fed/Trump Face-off: When Fiscal and Monetary Policy Collide.” https://www.kiplinger.com/article/investing/T023-C032-S014-fed-vs-trump-when-fiscal-and-monetary-policy-colli.html. Accessed Feb. 12, 2018.

3 Eric Rosenbaum. CNBC. Nov. 27, 2017. “Chance of US stock market correction now at 70 percent: Vanguard Group.” https://www.cnbc.com/2017/11/27/chance-of-us-stock-market-correction-now-at-70-percent-vanguard.html. Accessed Feb. 12, 2018.

Cecile Vannucci. Bloomberg. Feb. 9, 2018. “Volatility Explosion Is Sparking a Rush to Hedge at Any Cost.” https://www.bloomberg.com/news/articles/2018-02-09/a-conundrum-for-hedgers-now-that-you-need-it-the-vix-is-at-32. Accessed Feb. 12, 2018.

Kristine Owram. Bloomberg. Feb. 12, 2018. “Morgan Stanley Strategist Who Predicted Volatility Says Buy Now.” https://www.bloomberg.com/news/articles/2018-02-12/morgan-stanley-strategist-who-predicted-volatility-says-buy-now. Accessed Feb. 12, 2018.

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