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Keeping a Long-Term Mindset in the Midst of a Headline Driven Market
By: Michael Sustarsic, Research Analyst
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| There is no shortage of attention grabbing headlines from newspapers, television shows and our smart phones on a daily basis. While these headlines are often important and keep us current, they’re also controversial and potentially impactful to our investment portfolios. In the few minutes we take to gloss over the key points, those same headlines may resonate as actionable and meaningful. Over time, the importance of the headline tends to fade, as it is replaced with another, and the overall impact of the headline on portfolios becomes a small blip on a much larger radar. Too often, we find that key decisions are impacted, in partial or full, by these “blip on the radar” moments that fit nicely into the thesis of the week, but rarely into the long-term goals investors set out to achieve.
Severe, unsustainable, fiscal calamity, accelerates, backlash. These are all words that grabbed my attention during a 90-second scan of an online news outlet this morning. Each of these buzzwords steered my mind to a point where I began to question which adjustments I should make to my portfolio to prepare for the topic of the article. Nonetheless, these headlines and the issues detailed within will likely not keep me up tonight or register in my mind a month after reading them. Several years from now when I measure portfolio performance and determine if my goals were met, these headlines will not be so much as an afterthought.
The ability to distance ourselves from the daily back and forth of analysts and experts is a meaningful and necessary component to sustain the probability of achieving desirable outcomes. This requires a focus on the longer-term goals of portfolios and the capacity to dismiss or dampen headlines or news items that otherwise seem relevant. Brexit serves as a very impactful event which we can reference as a recent example. The three headlines below all appeared in various publications just days after the historic Brexit vote:
“Brexit Turmoil Deepens: Dow down nearly 900 points in 2 days” – CNNMoney, June 28, 2016
“Brexit has wiped $2 trillion (and counting) off global stock markets” – Quartz, June 27, 2016
“Brexit fallout crushes financial stocks; Dow falls over 200 points” – Moneycontrol.com, June 27, 2016
In the one-year ending June 30, 2017, the S&P 500 Index is 17.9% higher, the MSCI ACWI Index is 19.4% higher and financial stocks are up 27.6%. Decisions made in the aftermath of the Brexit, which undoubtedly suggested more conservatism within portfolios as a result of uncertainty and volatility, are in all likelihood farther away from achieving their goals than those that maintained a long-term focus.
Consider two hypothetical portfolios – both that were initially invested in 60% global equities and 40% domestic bonds1 until after Brexit when one became more conservative and shifted to an equal-weighted stance. Over the past year, that decision would have cost the portfolio 1.97% in return. In a $10 million portfolio, that amounts to a missed opportunity of almost $200,000 in potential funding for an institution and worse, the additional missed opportunity of future compounding for years to come. Over ten years at a hypothetical annualized return of 6%, the 2% mistake that seemed prudent and rational on a shortened investment timeline becomes a $350,000 mistake, or 3.5% of the starting portfolio.
The markets and the world have become increasingly headline driven which often translates into a “shoot first, ask questions later” mentality. When headlines and events that are seemingly impactful inevitably make their way into actionable portfolio discussions, allocators must remember to reverse the “shoot first” mentality. Outcomes are more likely to remain favorable by sticking to the long-term plan, remembering the goals and broadening the narrow focus in which we so frequently consume information.
For more information on this topic, please contact any of the professionals at DiMeo Schneider & Associates, L.L.C.
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| 1 Global Equities Index - MSCI ACWI Total Return, Domestic Bonds Index - Bloomberg Barclays Agg Bond Index
While this article addresses generally held investment philosophies of DiMeo Schneider & Associates, L.L.C., it does not represent a specific investment recommendation for any individual client or prospective client. Please consult with your advisor, attorney and accountant, as appropriate, regarding specific advice. Any forecast represents median expectations and actual returns, volatilities and correlations will differ from forecasts. Past performance does not indicate future performance.
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| This report is intended for the exclusive use of clients or prospective clients of DiMeo Schneider & Associates, L.L.C. Content is privileged and confidential. Any dissemination or distribution is strictly prohibited.
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