Investors have spent the fall trying to figure out how to profit from the election, the pandemic and the indelible changes they’re leaving on the economy and the stock market.
They’re looking for angles on what’s next, the right way to play the exciting transformational changes affecting real estate, health care/genomics/pharmaceuticals, work-from-home technologies, banking and more.
While there will undoubtedly be winners who gain a first-mover advantage or who simply turn a quick-hit profit, don’t expect your own portfolio to be that lucky.
It’s not that you can’t be the winner in that game, it’s just that most investors aren’t. They don’t gain an edge playing the market news instead of investing for the long haul. Countless studies show it.
Instead, the best thing you can do for your portfolio is to extend your focus on long-term horizons, control what you can and settle for boring.
That doesn’t mean buy, hold and fuggedaboutit, but instead renewing your focus on what has been working.
Make no mistake about it, long-term investing is precisely what has worked this year. If you turned back the clock to late in 2019 and asked experts to forecast election-year markets — the kinds of questions I ask every day on my podcast — you were hearing projections calling for high single-digit gains, with a few outliers expecting something more, pushing toward 12 percent and beyond.
No one was calling for a global pandemic, record unemployment, massive economic stimulus — but then stalled negotiations on further actions — interest rates going back to zero, a short, deep bear market and a snap-back recovery toward record-high levels.
Investors have gotten all of that, the full misery toy kit of 2020 plus those decent expected returns.
It hasn’t felt that way if you watched the market all the time, but despite the massive sell-off in February and March that still has many investors spooked, the Standard & Poor’s 500 is up roughly 6.5% this year, with enough time to get to those high-single digit gains; the index is up nearly 15% over the last 12 months.
Meanwhile, investors who made moves that felt right amid the meltdown have mostly had to live with regrets. A recent survey of 1,000 Americans by MagnifyMoney.com found that more than four in 10 investors sold stock around the start of the coronavirus pandemic and nearly all of them regret those moves now. Seven of every eight sellers expressed their regrets, with roughly 70% of those investors saying they were feeling “a great deal” of anguish and grief.
Moreover, nearly half of the investors said they lost money since the market collapse of February and March, which is stunning because the market is up more than 50% since reaching its low on March 23.
It’s hard to lose money when the market is gaining ground that hard and fast.
“We all know how to invest,” says noted financial educator Meb Faber, chief investment officer at the Cambria Funds. “You put your money at risk in businesses through stocks, you invest in real assets through real estate and commodities, and you can be the lender through bonds. Put together a portfolio and it works well historically, wonderfully for many, many decades. The biggest problem is being a human and mucking things up.”
The focus for investors now, therefore, should be less on going after the perceived opportunities buried just beneath the headlines, but in avoiding the muck-ups.
Victoria Fernandez, chief market strategist at Crossmark Global Investments, noted in a chat on my show that investors can plumb current events for opportunities, but they are not so much about what is happening today as to what has changed for the long-term future.
“Some of the things happening right now are setting in place longer-term trends, and that is where we are finding longer-term opportunities,” Fernandez said, “but we’re not getting caught in ‘Let’s do day-trades based on COVID headlines,’ we’re looking at things we think will be beneficial going forward. The longer-term perspective is key right now.”
That perspective means checking your asset allocation, rebalancing the portfolio to guard against any post-election volatility or downturn, and reviewing your investments to make sure you’re not paying too much to own them.
Expense ratios in both traditional mutual funds and exchange-traded funds (ETFs) have been declining for years, but a lot of that reduction in average costs has been created by new funds coming out with low costs, rather than established funds giving customers a price break.
Think of it like signing up for a cellphone plan or for internet service, where you agree to a suite of services at a set cost and may pay that amount for years, even as new plans and evolving technologies drop costs.
If you don’t review plans on your devices periodically with an eye on costs, you may be paying too much by holding on to yesterday’s bargain.
That applies to funds, as investors looking to clean up portfolios may find that their older issues have held to cost structures that are now too high, above the level available just by moving to a fund with similar holdings but a lower expense ratio.
Investment performance is never guaranteed, but costs are; don’t be so enamored with stories of transformational change that you pursue bigger investment returns without seeing if you can improve your results with a little housekeeping and attention to detail.
“Investors, for the life of them, still don’t have a problem paying huge fees and taxes,” says Faber, in an interview airing on my show. “Those are the silent killers that destroy your portfolio; what you invest in doesn’t hold a candle to the actual implementation. …What really matters is the boring stuff.”
Keep that in mind the next time you’re looking for investments that are exciting the market right now.
Boring isn’t so bad when it pays off in the long run.