We are experiencing a new peak in the rhetoric around trade, geo-politics, the economy and the business cycle. We have also seen increased market volatility. It can be hard to know when to be concerned and when to tune out the noise. Having a consistent framework for viewing markets with a long-term perspective can be a valuable tool to help avoid costly behavioral mistakes. While there may be a heightened sense of fear in the headlines, based on our Market View, there is no reason to sound the alarm.
“Now’s not a good time to invest,” or “I’m waiting for the right conditions” are familiar refrains we hear from investors and advisors alike. Fortunately for long-term investors who don’t take regular withdrawals from their portfolios, the sequence of returns doesn’t affect the ultimate investment outcome.
With the recent market decline, increased volatility and the deafening media noise, it can be easy to lose track of the basics. Remember, recent activity doesn’t tell us much about market returns.
Planning is a powerful tool to help investors succeed and achieve better outcomes. The table below highlights the benefits of planning taken from a study on retirement planning among Americans over age 50. The results show that having and sticking to a plan results in three times the net worth when compared to those who don’t have a plan.
Investors, economists and the media spend an enormous amount of time and energy trying to forecast the economy. The idea is that forecasting economic growth will give us an idea of where the stock market is headed. Surprisingly, no predictive relationship exists between current economic conditions and the current stock market.
The surging US economy and stock market have left international markets behind, with the S&P 500 Index beating the MSCI EAFE Index1 by 7.1% per year for 11 years. But US equities don’t always outperform the rest of the world, and the potential of international equity returns shouldn’t be overlooked. Currently, most investors are under-allocated to international equities and now might be a good time to invest more overseas.