The hardest thing to do in investing
Normally, you might be quite comfortable making regular contributions to your investment program. But then an extraordinary market event takes place — like the U.S. stock market’s remarkable bull run from 2009 and into 2018, when the S&P 500 index climbed almost 300%. Even a disciplined investor may wonder if unusual times call for unusual measures.
The battle of fear and greed
There are two ways investors typically react to unexpected events. The first is all about greed: Invest even more money in the outperforming market to try to make greater profit.
Trouble is, investors ramp up contributions when shares or fund units are now expensive. Those contributions could provide greater long-term growth by purchasing securities with better prices and upside potential.
The second reaction is motivated by fear. These investors want to sell off holdings in the outperforming market because they’re worried the bull run will collapse.
But this move also comes with a downside. They might miss out on continued gains and regret their reaction.
Conquer both evils
Fear and greed are strong emotions. To win out against them, you need to do something that many investors find extremely difficult: nothing. That’s right — just continue to make regular contributions and maintain your target asset mix.
No one, not even the experts, knows when a market will peak or bottom out. By purchasing on a regular basis, you won’t overinvest when prices are higher or miss out on opportunities when prices are lower.
Maintaining your target asset mix means rebalancing regularly. This allows you to take profits from outperforming assets and re-invest them in assets offering good value.
If a booming market — or a downturn — ever tempts you to change the way you invest, please talk to us. A reassuring voice can help you keep your regular investment program on track.