"Mind the Gap"
Below are excerpts from a 2014 article by Russel Kinnel based on Morningstar research about the importance of stay-the-course. The article is a year old, but Boglehead Principles for successful investing do not change:
"Yikes. I knew it would be bad, but the latest Morningstar Investor Returns data look downright ugly. Investor returns is Morningstar's measure of the actual returns that fund investors enjoyed. We take a fund's stated return and then adjust for inflows and outflows so that we have a measure of how the typical investor really fared."
"I knew it wouldn't be pretty, because fund flows were going in all the wrong directions entering 2013. Investors were buying bond funds, selling U.S.-stock funds, and buying emerging markets. We know now that that was exactly wrong. Bond funds got smacked by rising rates, emerging markets got stung by slowing China growth and the looming Fed taper, and U.S. equities had their greatest year in a generation."
"Most fund investors are rather patient folks who don't make big moves from year to year. But those who did once more showed how hard it is to time the markets."
"A $10,000 investment in Vanguard Total Stock Market Index (VTSMX) on March 9, 2009, would be worth more than $31,000 today."
"The data tell a tale of poor timing, and it seems to be getting worse. I suspect the 24-hour news cycle inundates us with news and opinions leading to investing based on anxiety rather than logic."
"Rebalancing is a great way to counteract the temptation to invest emotionally. When you rebalance, you are buying low and selling high."
"Stick to Your Plan. In the bigger picture, the way to avoid letting fear or greed drive your decisions is to develop a robust plan and stick to it. If you understand why you own what you own, you're much less likely to panic when you hit turbulence."
"Tune Out Noise. Don't spend too much time watching TV news or checking your accounts. It only leads to bad behavior. Who cares if a talking head predicts gold will surge and stocks will tank? Focus on your needs and goals. As the data show, timing markets is too difficult, so have faith in your plan and carry on regardless, as Jack Bogle likes to say."
Mind The Gap