“But Everybody’s Doing It!”

“Investors Yank $150 Billion from Stocks for 3rd Year”

“Investors Pull Billions from US Stocks in Longest Outflow Streak since 2004”

“Investors Yank Billions out of Market Following Trump’s Tax Bill Win”

What do these three headlines have in common? Here’s a hint: it’s not the date of publication. Another hint: they didn’t all come from the same news outlet. The first one was published by CNN.com on its website, “The Buzz,” and it hit the internet on December 27, 2012–a little over five years ago, as this is written. The second two were both released by CNBC, albeit by different reporters. The second is from August 25, 2017, and the third, as the copy suggests, is from December 22, 2017.

What is your instinctive response when you read headlines like these? Do you feel the urge to call your stockbroker or financial adviser and say something like, “Let’s get out–now!”? Do you feel a vague–or acute–unease as you contemplate your portfolio, firmly invested in US equities, perched like a sitting duck as we rush toward financial Armageddon?

I hope not. I hope, instead, that you’ll consider what happened at the end of 2012 to all those who were in such a hurry to cash out of an “overheated” market. Do you remember what occurred in the equity markets in 2013? The S&P rose 30 percent, and the dividend jumped 19 percent. How much of that cash that investors “yanked” in December 2012 sat on the sidelines in short-term instruments or money market accounts, earning between 0.1 and 0.14 percent for the next twelve months or more? Or how about the cash that was parked in August 2017, earning maybe as much as 1.3 percent–if you were lucky–during a period when the S&P 500 rose by nearly 10 percent?

I hope that the moral is obvious by now: following the herd is almost never in your long-term best interest. Remember when you were in junior high or high school, and you used the time-honored phrase, “But everybody’s doing it!” in an attempt to justify some youthful–and ill-advised–intention? My guess is that if you think objectively, you’ll see that in the majority of cases, going along with the crowd was not a recipe for great personal success. Similarly, abandoning equities on the basis of the herd mentality and sensationalistic headlines in the financial media will almost always ultimately prove to be a huge financial mistake.

Is there a downside correction in the market’s future? Certainly; nothing goes up forever. Is that a reason to abandon stocks and go to cash? In the overwhelming number of cases, the answer is no. Over and over again, history has shown that investors who bail out of the equity markets sacrifice significant gains: gains they could have enjoyed if they had heeded objective, professional, non-emotional counsel.

One of the most valuable services we provide our clients is providing the type of evidence-based, historically grounded advice that keeps them from taking actions that are likely to prove detrimental to their long-term financial health. If you are considering making significant changes to your portfolio, one of the best things you can do for yourself is to have a detailed discussion with a qualified, professional financial advisor. One of the other best things you can do is to promise yourself that you will never make a major financial decision on the basis of headlines in the financial news media.

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