Properly constructed portfolios focus on long-term performance consistent with your investment goals and time horizon. However, investing can be a long and sometimes challenging road.
Periods of increased equity volatility are normal and can occur at any point – even during the most robust bull market years. But increased volatility can be trying at times. You may be tempted to take near-term action to reduce volatility – like moving heavily away from stocks – actions that may run counter to your longer term strategies. This may help alleviate near-term volatility, but frequently can have longer term consequences, diminishing the likelihood of achieving your long-term goals.
On the flip side, you may occasionally be tempted to focus on hot segments of the market. This can happen after a sector has had a long run of superb performance – not unlike the Technology Sector in the late 1990s and early 2000. Here, you may have the opposite reaction and may want to increase risk – by investing more heavily in a narrower sector – and again deviating from a longer term strategy. You may feel you are “missing out” on better returns. But this too can have longer term consequences harming longer term performance. Even the very hottest sectors eventually go cold – but it can be very difficult to predict when.
Many investors make hiring decisions based on historical performance. That’s a dangerous practice – you should not base your hiring decision purely on past returns. No manager can promise matching past returns, consistent outperformance, or investing without downside risk potential.
No one should expect to achieve positive returns every day, month, quarter or year. Rather, the goal of performance is to outperform an appropriate benchmark over time, putting you on the path to accomplish your investment goals and objectives over your time horizon. Markets are forward looking, not backward, and you cannot buy past returns. Selling performance is Wall Street’s way of playing to your greed. We believe that isn’t in your best interest.