Investors, during the 2010s, played witness to the first decade that wasn’t stricken with a single recession.
This occurred, of course, after a decade that was book-ended by two recessions.
The 2010 market thrived, even though the year-end 2009 lows suggested arduous struggles for the next decade. Given how brutal the 2000s had been, it would’ve been fair to expect the economic stage in the coming years to wreak havoc on investors.
Yet other than some brief moments of mild volatility — where corrections led to 200-plus all-time heights on the S&P 500 — the past ten years were fruitful.1
In fact, the 2010s were the only other decade on record — besides the 1990s — absent of a single bear market (i.e., a loss of 20% or more). Despite being down 19.4% in 2011 and 19.8% in 2018, U.S. large-cap stocks never crossed the critical 20% threshold.2
The Challenges of Investing
Not every single investor will thrive when the market thrives.
Don’t get us wrong: the market, being what it is, has proven lucrative for a multitude of investors throughout history. Still, studies from the middle of the 2010s show that average investors fail to achieve market-index returns.3 So, even when the market is clicking on all cylinders, far too many investors have been unable to capitalize.
What differentiates these individuals from those who’ve reaped the benefits of a prosperous decade?
While an array of factors impacts overall success, the behaviors of investors, generally, are what dictate their fate. Whether the market has been catastrophic or tremendous, these various actions and strategies help them get the most value out of their investments.
Investments and Wealth Management: It’s All About the Fundamentals
Investments are a critical aspect of a holistic wealth management strategy. Furthermore, being fiscally responsible and intelligent in all money matters tends to reflect positively — eventually — in one’s investments. But it’s one thing to practice disciplined, focused investment behaviors; it’s another thing to stick to them in the face of the (all-too-noisy) financial media and external pressures.
So, where can investors strike a healthy balance? It starts with relying on the fundamentals — behaviors that are proven to lead to a rewarding investment experience. These are some of the most critical:
Keep the Future in Mind
Investing requires a commitment to playing the long game. With a big-picture approach, investors will remain optimistic — even when times are at their most tough. At Treehouse Wealth Advisors, for instance, we encourage our wealth management clients to focus on what they’re investing for over the long run: retirement, their children’s college education, starting a business…the list goes on.
On the whole, an investor’s overall wealth isn’t going to accumulate in an instant. So, it’s unwise to expect investments to do the same. Becoming a successful investor isn’t generally possible for someone seeking instant gratification.
Resilience is of the Essence
When a person decides to invest, they accept the idea that they’re going to see declines in the short term.
In these times, investors must maintain a level head and fend off the urge to become reactionary. After all, it’s only through considerable resilience and a dash of stoicism that investment performance can flourish on the market.
In this vain, wealth management is very much the same. Investors are guaranteed to run into any number of unforeseen circumstances in their life. Everybody — at some point — loses a family member, for instance. Or, perhaps, you can end up with a plethora of medical expenses not covered by insurance. While difficult to imagine, these are the twists and turns that inevitably come with the journey of life — and the point of wealth management is to develop a solid plan for weathering the financial storms that can come our way.
With a commitment to their finances, investors will see themselves through the tough times — much like with their investments.
Accumulating the Necessary Savings
One of the best opportunities for investors to thrive is through staunchness with their savings.
Provided an investor starts saving a vast percentage of their money as early as possible, and they’re efficient with their savings, that investor will increase their chances of seeing long-term success.
In other words, investors can’t succeed through investing in the market alone; it’s important to lay the building blocks first. With a distinct focus on savings, investors are equipping themselves for the future. Greater savings lead to more money available to invest in a more diverse, robust portfolio.
Putting a Firm Plan in Place
Today’s investors can’t invest, save, or manage their overall wealth with any prosperity without a firm plan in place. Beyond that, investors need discipline to enact those plans under any circumstances — even when the market gets scary, and emotions run high.
Stock-picking and gaming the market won’t lead to long-term wealth creation — and strong investment returns mean nothing without a proper plan for the future. Adopting positive, non-reactive investment behaviors positively impacts overall wealth management.
By staying focused on the fundamentals, investors not only will have a more rewarding investment experience but also boost their chances of achieving what they want most out of life — whether it’s a comfortable retirement or financial security that transcends generations.
Are you an investor who is looking for wealth management advice, or a financial advisor who is interested in growing their business? Treehouse Wealth is here to help. Contact our team today.
1Ben Carlson, “For Investors, the Past Decade Was a Marvelous Run. But That Only Tells Half the Story,” Fortune, December 17, 2019, https://fortune.com/2019/12/17/investing-decade-in-review-s-p-500-tech-fed-interest-rates/, accessed January 2020.
3DALBAR INC., “21st Annual Quantitative Analysis of Investor Behavior,” Advisor Edition – 2015, http://www.afswealthmgt.com/sites/default/files/users/afswealthmgt/pdf/13ad438e-60e7-404e-b97e-5e3b665ce167.pdf, accessed January 2020
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