As we kick off another year, it’s always interesting to see what has changed in the last 12 months. I’m guessing for many of you, much has changed. For some, the changes may be little, like new living room curtains or a new favorite outfit. For others, changes can be significant, like a new baby in the family or a new job. As I continue to talk about planning for my client’s futures, it’s powerful to look back once in a while and remember how we got to where we are. Yet as I discuss this phenomenon with clients, I’m amazed at how quickly we forget the past. Why is that? Are we well conditioned to simply adapt to our new surroundings? Is it because we create a “new normal” for ourselves? Or are we so focused on our day-to-day lives that we loose sight of the bigger picture?
2013 was a strong year for the U.S. Equity markets! The Standard & Poor’s 500 (An index comprised of the 500 largest US based companies; it is unmanaged and cannot be invested into directly) returned three times1 greater than its annualized average over the last 50 years! Is this the new normal? Or should we all take a deep breathe and recognize that what has been normal over the last couple years, is still normal; volatility.
Coming off an amazing year, it’s tempting to think we’ve somehow figured out the secret to investing – that strong gains will be the “new normal”. It’s easy for us to forget the mistakes of the past and just put everything in stocks as we press the cruise control into retirement. It sounds tempting, doesn’t it? I’m exaggerating a bit. But I’m witnessing the behavior. When we reach a “new normal,” it’s easy to become complacent, to think that this time it’s different. But the fundamentals haven’t changed. Investing can be volatile, and the market does not always go up.
It’s still incredibly difficult to find the magic bullet. It’s still incredibly difficult to consistently find which side of the trade to be on. It’s still incredibly difficult for an investor to consistently get the actual investment return he or she seeks. When we forget that we’re still human and still likely to react to what we see in the news, we’re setting ourselves up for disappointment. Strong returns in 2013 don’t guarantee that we’ll be smart, well-behaved investors in 2014. It’s why I continue to stress the need for a financial-planning process instead of just a plan.
By engaging in a process, we put guardrails in place that help us manage the ups and the downs, both in the markets and our emotions. So go ahead and celebrate a good year, but don’t forget what you said matters most to you. That’s what should drive your financial decisions going forward—not the “new normal.”
Benjamin N. Haas, CFP®, CRPC®
Wealth Manager, Kutztown
US Wealth Management Lehigh Valley
Securities offered through LPL Financial, Member FINRA and SIPC. Investment advice offered through U.S. Financial Advisors, a registered investment advisor. U.S. Financial Advisors and U.S. Wealth Management are separate entities from LPL Financial.