And the Oscar goes to…

The stars were aligning for La La Land until the unthinkable happened.  Warren Beatty and Faye Dunaway delivered the best picture category at the Oscars on Sunday Night and announced the winner – La La Land.   The crowd, along with a few billion-people watching around the world, were stunned to find out the actual winner was Moonlight.   Apparently, the accountant from PwC was tweeting during the show and this may have caused the blunder.

Investors are constantly worried about making mistakes.  Did I buy too late?  Am I selling too early? What if the market goes down?  What if interest rates go up?  Investors can die a thousand deaths contemplating all the negative outcomes they may incur.  Reacting to what might happen is worse than what will actually happen to your portfolio’s long term investment performance.

Here are few investment blunders.

Blunder 1.   An investor who purchased Apple in 1980 experienced a wild ride.  During Apple’s thirty-seven-year run it had year ending values where it lost over 30% of its value four times, 50% of its value twice and 70% of its value once!  How did this error turn out?  A $10,000 investment in 1980 is now worth $2.8 million dollars giving the brave investor an average annual return of 16.91%![1]

Blunder 2.  An investor who purchased the Vanguard 500 Index Fund (VFINX) on October 15, 1987 had to suffer through the worst one day stock market correction in history.   A few days later, October 19, 1987, the market fell 508 points or over 22%.  How did this gaffe turn out?  A $10,000 investment has grown to $147,000 providing an average annual return of 9.59%.[2]

Blunder 3.  Amazon is crushing the competition and is on the threshold of world dominance.  Amazon started trading in 1997.  During this fabled run, it had year-end losses of 15.83%, 22.18%, 30.47%, 44.65% and 79.56%!  Amazon has survived these major hits.   How did an investor do if they purchased Amazon in 1997?  A $10,000 investment is now worth $4.2 million providing an average annual return of 35.83%![3]

Blunder 4.  An investor who purchased the iShares S&P 600 Small Cap Index fund (IJR) on August 1, 2007 lost 35% of their investment value in less than two years.   A $10,000 investment in this fund is now worth $23,000 for an average annual return of 9.12%.[4]

As these four “mistakes” highlight it’s possible to recover and soar to new heights.  We’ve all made mistakes in life.  If you fumble, pick yourself up, dust yourself off, and move on.  Time will heal all wounds.

Here are a few suggestions to help you reduce your risk of making investment miscues.

  • Diversify your account with stocks, bonds and cash.
  • An automated monthly investment program will allow you to purchase stocks in rising and falling markets.
  • A cash position will soften the blow when stocks go down. When you experience a drop in price, use your cash to buy more shares.
  • Be patient and think long term.

The Hollywood elite will recover and I’m sure next year everyone, most everyone, will have a good laugh over this year’s most memorable moment.

Oscar and I have something in common. Oscar first came to the Hollywood scene in 1928. So did I. We’re both a little weather-beaten, but we’re still here and plan to be around for a whole lot longer. ~ – John Wayne, 1979 Academy Awards honoree.

Bill Parrott is the President and CEO of Parrott Wealth Management, LLC.  For more information on financial planning and investment management please visit www.parrottwealth.com.

February 28, 2017

Note:  Past performance is not a guarantee of future performance.  Your returns may be more or less than those posted in this blog.

 

[1] Morningstar Office Hypothetical Tool, February 28, 2017.

[2] Ibid.

[3] Ibid.

[4] Ibid.

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