U.S. Open: Great Golf Drama, Misguided Investment Messages
by: Brendan Magee, June 2013
It would be hard not to get caught up in the drama of this past week's U.S. Open Golf Tournament. Could Phil Mickelson finally breakthrough and win his first U.S. Open after so many heartbreaking runner up finishes? Would one of the other golfers finally win the first major tournament of their careers? Golfers and nongolfers around the country watched with baited breath as every shot could determine who would wind up victorious. From the standpoint of riveting drama, the U.S. Open delivered in spades to its viewing audience.
What the tournament also delivered was some poorly framed investment commercials, and as I watched the commercials I wondered how many investors got caught up in their misguided messages. One in particular stood out to me. There was a couple sitting across the table from a financial advisor and they were trying to get their nerve up to as they said to, "Start investing again." Their fate was portrayed that as the markets went through some rocky times, they took their money out of the market and now was the time they had to get back into the market.
As I watched the commercial I was wondering how many people could identify with this couple's plight and were in the same boat trying to figure out when they should get back into the market. I also wondered how many people realized this couple in trying to solve their dilemma were working on the wrong end of the problem. Here's what I mean by that.
Go back to 2008, the stock market was in a free fall. U.S. Large Company Stocks went down by 36 percent. U.S. Large Value Stocks went down by 40.74 percent. U.S. Small Company Stocks went down by 36 percent. Globally, markets were in complete free fall. You couldn't find a news outlet that didn't say the end of the world was about to occur.
The couple in the commercial and real life investors saw their life savings take a beating, got scared and took their money out of the market. In October 2008, investors took $58 billion out of the market (As noted by the Dalbar Corporation) and investors waited until the market settled down. In other words, they waited until the market went back up. So investors sold low and now are committing the sin of buying high by getting back into the market after the rebound. In and of itself this is investment suicide, but to make matters even worse look at the returns investors waiting on the sidelines have missed out on going back to January 2009 through June 19th, 2013.
U.S. Large Company Stocks are up 58.60 percent. U.S. Large Value Stocks are up 125 percent. U.S. Small Company Stocks are up 130 percent, and Emerging Market Stocks which were down 49 percent in 2008 are up 88.33 percent since January 2009. Investors who got out of the market in 2008 or early 2009 made the impact of their losses permanent. Even if they got back in today it will be impossible to make up for missing out on the spectacular returns of the past three to four years.
The lesson to be learned is not panic and get out when markets go down, not try and figure when is the right time to get back in
Brendan Magee is the founder and president of Inevitable Wealth Coaching. With questions or comments call 610-446-4322 or e-mail firstname.lastname@example.org.