In probably the most tumultuous time in the market since the start of the Great Depression, it was very difficult to tame emotions for some as a number of investors dumped equities at or near the bottom and shifted to fixed-oriented securities. The reality is that many probably should have never had that much risk exposure anyway.
Over the last 2 years, pundits & money managers have tried to define the “new normal.” Others have declared death to the “buy and hold” investment strategy. The truth is that those who did not panic have recovered much of what they lost—and done so with less volatility. While “buy and hold” may be an okay investment strategy during the accumulation phase of your life, a unique set of risks has always existed during pre-retirement and early post-retirement. This is what necessitates a different investment strategy—not the undefined “new normal.”
Perhaps the reason why this bull market still feels like a bear to many of us is the fact that the 2008 financial crisis was such a trauma, and that some are waiting for another Lehman Brothers to rear its head. Volatility still feels high, though the VIX (the index which measures volatility) has been much lower. The market saw many swings in 2010, which were influenced by headline trading (Euro issues, Gulf oil spill), but they were mildly one way, and then mildly the other…miss one of the mild swings upward and you may have significantly affected your overall success for returns for the year.
While the world gets more complex and economies grow more inter-dependent, the difficulty in staying committed to an investment strategy through emotional ups and downs becomes the biggest challenge to those that need investments growth, but cannot stomach swings.
