(from Dan Wheeler’s blog dated 10/29/2013. Click here for the original post. Dan helped found the Financial Advisor Services arm of Dimensional Fund Advisors in 1989 and remained there until his retirement in 2010. In retirement, Dan is focused on his writing and various philanthropic efforts around the world. Learn more about Dan here or follow him on Facebook here.)
It’s been a great year for investors but with the market at an “all time high” shouldn’t we wait for the inevitable “correction” before putting more money into the market? Or worse yet, perhaps investors should get all of their money out of the market. Are we seeing another bubble that is about to burst? After all we have reached the dreaded “Triple Top.” (If you look at a chart of the S&P 500 you will see what I am talking about. “Chartist” believe they can predict the future by looking at the past, wouldn’t that be nice.)
The year-to-date return from the S&P 500 is a little over 25%. Wow, perhaps investors should tread carefully. But if investors look at this with a long-term perspective they will not find this alarming. The historical annual return for the S&P 500 (as far back as we have data-1926) is a little over 10%. The annual return over the past 13 years is a little over 1%. The lowest return for a 13-year period since the great depression.
Market indices such as the S&P reflect the increases and decreases in wealth generated by the global economy. If you believe that the global economy has come to a perpetual halt, then an investment in the equities market makes no sense for you. Find a cave and prepare for the “end.” Or—if you believe there is a future and you can “time” the market, you are a fool! But if you are a disciplined investor with a long term perspective you are on the right path.
Advisors, and investors alike, need to always keep things in perspective; something the media and the peddlers of financial products fail to do. The media needs for investors to watch their “Cramers” and to read their daily forecast to make money. The financial services industry needs investors to change course frequently for the same reason. A proper perspective for investors is always “long term.” All the “noise” created by the media and the financial services industry may be interesting for speculators, just as a tip sheet may be interesting for those playing the ponies. But by keeping a proper perspective you will be able to see clearly through all the “noise” and you will have a successful investment experience.
Warren Buffet was interviewed this past weekend and it is always comforting to hear the “Sage of Omaha” give the same message over and over again. “Stay disciplined, diversify with passive funds, and keep costs low.” (Here is the link should you care to read it: https://usat.ly/1bovELt .) What is sad is that no matter how often people hear this “message,” most people still “don’t get it.” If you are an investor and you do “get it,” you will have success. If you are an advisor, you need to help those who don’t. They need you!