The great philosopher Mike Tyson once said, “Everybody has a plan until they get punched in the mouth.” After two years of 20+% gains in the S&P 500, this week's drop after sweeping tariff announcements feels like a knockout punch. How did you react? Did you stick to your investing plan? Did you even have one?
Successful investing requires a plan—a portfolio allocation that meets your long-term risk and investment objectives. But you have to stick to the plan, which has been a challenge so far this year. Your ideal allocation can certainly change over time with age and evolving financial priorities, but market moves should not drive that decision.
Unfortunately, emotion and cognitive biases related to changes in the market can cloud judgement and cause investing missteps. Most notably, loss aversion, which is a cognitive bias that causes individuals to feel the pain from loss more than pleasure from gain, makes many investors buy high and sell low—a recipe to lose money 100% of the time.
We’ve all collectively forgotten that investing is hard. Stocks don’t always go up, and you can lose money. Yes, over the long-term stocks have historically provided great returns for investors, but that long-term narrative gets lost when companies like NVIDIA deliver parabolic returns over such a short period.
Warren Buffett once said of his company, Berkshire Hathaway, “Our favorite holding period is forever.” That doesn’t mean you should never sell--even Buffett sells some of his positions from time to time. But it does mean that you should buy a portfolio you are comfortable keeping for a long-term duration, riding out the ebbs and flows of the market.
Every investor should be aware of what’s going on in the stock market. But day-to-day obsession will lead to poor investment decisions. Check you emotion and remember that investing is a long-term endeavor.
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Josh Norris is an Investment Advisory Representative of LeFleur Financial. Josh can be reached at josh@lefleurfinancial.com.
Josh Norris, CPA, CFP, CFA is the managing member of LeFleur Financial, a wealth management and tax advisory firm.