.jpg)
Over the past few months, you have probably heard more than a couple of Trump Administration officials tout the fact that the stock market is at an all-time high. This should not come as a particular surprise, as you can just go back to 2013, when the market was seemingly hitting all-time highs on a daily basis, to see the Obama Administration taking the same victory lap. Now we can argue the merit of any President taking credit for market performance (I happen to believe that their responsibility, good or bad, is limited), but that is not today's topic. Today, let's look at the danger that exists in constantly hearing about how great the market is doing.
First, some facts. Yes, by virtually all measures, the U.S. market is at, or near, its all-time high. S&P 500 returns through June 30th are the second highest for any January-June period since 2004 (only topped by the first six months of 2013). Healthcare, industrials, materials, information technology, and technology sectors are all up more than 10% for the year. In fact, of the major U.S. sectors, only energy and telecommunications are down in 2017. And let's not forget the world economy, where developed international stocks and emerging markets are both up more than 13%.
With all of this good news, it is natural for people to be a little bit greedy. Understandable for them to become unhappy with their six, seven or eight percent return, because it appears to them that you haven't maximized their portfolio's potential. Common to add risk to their portfolio...to press their luck and just hope not to hit any whammies. But when you do it, take a more aggressive position in the market, you commit one of the two fatal errors in disciplined investing—buying high.
I am not saying that getting into the market now is a bad thing. Nor am I saying that we have seen the market top and now is time to pull money out (I am never a believer in that). I am simply saying that investing is a marathon, not a race, and return-envy shouldn't make you change your long-term strategy. Chasing returns is virtually always a losing proposition. It is the equivalent of picking out your clothes based on yesterday's weather. And it is the main reason why studies suggest that investors who give into temptation see an average 2% lower return than those who maintain their disciplined behavior.
We all know that patience is a virtue when the market is low, but I would contend that it is an equally important virtue when the market is at an all-time high. It is not that we don't want to make as much money as possible when we can—far from it. But at what cost? If yesterday's returns were the market top, then the only place you have to go is down. And when you are in the 9th year—the 101st month—of a bull market that has seen the S&P 500 go up more than 334%, it is more than likely that the gas tank is a lot closer to empty than full. Again, that does not mean it is time to get into the bunker either. There are no major signs of impending doom. It is just a reminder that no matter how hard you try, you cannot time the market. No one can. And those who try, fail and fail miserably.
Over the long term, you will always be best served keeping yourself diversified. Drive in the middle lane. Stay the course. And don't change your appetite for risk just because yesterday's returns dictate that you would have made a couple more dollars if you had been more aggressive. Whatever frustration you feel with returns slightly lower than you hear in the news, I promise that you will feel 10 times more relieved when the money you've worked hard to accumulate is spared the full brunt of the next market downturn...whenever that might be.