Stay Focused and Long-Term.
How many times have you heard that from me over the years? Gets boring but it bears repeating. Time in the market is more important than timing the market and the market events before, during and after the 2016 election have provided a classic example.
I was at an election party Tuesday night and as signs of a Donald Trump victory started to emerge, I watched the futures market start to plunge. At midnight, the Dow futures were down almost 800 points. By Wednesday afternoon, the markets had regained all of those losses and added an additional 250 points by the closing bell. Thursday added another 220 points as the Dow hit a new record high. Over 1,200 points or a more than 7% swing in two days! The overall gain since Monday was 3.5%. Quite an emotional roller coaster for me.
Markets can move quickly and trying to time the markets generally leads to long-term despair for investors. Investors like to miss the big down days but missing the big up days leads to worse outcomes. Some recent research from Bank of America Merrill Lynch showed that missing the 10 best days per decade can have a large effect on your overall investment portfolio. The most recent decade showed that by missing the best 10 days, your return would have been 34%, while keeping your money invested the entire time through the ups and downs would have earned you 95%, or three times as much. Every decade going back to 1930 had similar results. Trying to figure out when those 10 days are going to come is a fool’s errand but people keep trying. “You have to be in it to win it.”
If you think that it would have been easy to guess the direction of the market after the election, just remember that the pollsters and pundits were wrong about the election itself. Their predictions were based on people voicing their opinions, which don’t change as often or as fast as the markets. Lots of smart people who work in the polling business are rewarded for getting the most accurate predictions possible and yet they failed. Markets are much less predictable than election results. The best strategy is to stay focused on the long term and don’t let the day to day or evening to day volatility change your well-planned long-term investment strategy.