November 10th, 2015 | David Simpson

Short-term versus long-term thinking in investments

“In investing, what is comfortable is rarely profitable.” Rob Arnott, Founder of Research Affiliates

When you consider your investments, how often do you look at them? Do you focus on them month to month, day to day, or year to year? In any given ten-year period, it is very common to have drops in the stock market of 10% while still having a positive return year. The latest three-month period has been yet another example of typical intra-year behavior for the stock market. There is always something that will affect the value of stocks (earnings expectations, interest rate changes, political environment) that investors have to use to price the value of their shares. It is important to have patience when investing in stocks since shorter-term periods may be negative, even if the longer periods are positive.

We have seen a dramatic decline in the S&P 500 and the Russell 3000 from August 7, 2015 to August 25, 2015. The S&P 5000 dropped by -10.3% only to recover completely so that investing over the last three months resulted in a positive return in the S&P 500 of 0.56% for the last three months ending November 5, 2015. The Russell 3000 dropped the same amount of -10.3% from August 7, 2015 to September 29, 2015 to post an overall return of -0.24% for the last three month period ending November 5, 2015. The returns for these same indexes for the last ten years have been positive with the S&P 500 up 7.84% while the Russell 3000 is up 7.93%, both ending November 5, 2015.

We at Miller Advisors have a philosophy to invest according to a long-term plan and not react to any given market situation since you must plan and not react. By having a plan in place, it is easier to ride through the turbulence since you have confidence in your navigation. How uncomfortable have you been with your stock investments in the last three months with the roller coaster that we have experienced? If you don’t invest with a long-term plan, how do you invest?

Data from Morningstar

Russell 3000 —The Russell 3000 Index offers investors access to the broad U.S. equity universe representing approximately 98% of the U.S. market.

S&P 500 —Index of 500 largest stocks in the United States. The S&P 500 is designed to be a leading indicator of U.S. equities and is meant to reflect the risk/return characteristics of the large cap universe.

Image | Getty