One of the core tenets1 of our investing and portfolio building at Gap Financial Services comes from knowing that financial markets reward long-term investors. People expect a positive return on the capital they invest, and the equity and bond markets have provided the growth of wealth that has more than made up of for the market volatility. However, to enjoy the benefit of higher potential returns, investors must be willing to accept increased fluctuations and uncertainty. A key part of a good long-term investment experience is being able to stay with an evidence-based investment philosophy, even during unsettled times. A strategic, transparent investment approach backed by decades of academic research is the answer to being prepared to face uncertainty and that approach has historically captured the long-term returns of capital markets most effectively.
While market volatility can be nerve-wracking at times, reacting emotionally and changing long-term investment strategies in response to short-term declines often proves more harmful than helpful. As illustrated in this video, it is best to tune out the noise and adhere to a sound investment plan using discipline, perspective and calm.
1 Core Tenets
- Let the market work for you: it is an effective information-processing machine.
- Don't try to outguess the market; avoid market timing.
- Resist chasing recent past performance. Past performance offers little insight into future returns.
- Structure portfolios based on what academic research shows leads to higher expected returns.
- Practice smart diversification with a global portfolio to help reduce risk.
- Manage your emotions and look beyond the headlines.
- The financial markets have rewarded long-term investors.
Disclaimer: This article is provided for general information and illustration purposes only. There is no guarantee investment strategies will be successful. Investing involves risks including possible loss of principal. Diversification does not eliminate the risk of market loss. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. We encourage you to consult a fiduciary financial planner, accountant, and/or legal counsel for advice for your specific situation.Video provided courtesy of Dimensional Fund Advisors.