Mitch’s Mailbox, Your Portfolio Questions Answered

Fort Meyers, FL asks...

I received an inheritance and was going to invest, but the market’s volatility and downward turn has me concerned so I’m waiting. Is that a good idea?

Great question - and, an important one given the potential impact one's actions, or inaction, can have on long-term returns.

In August 2015, when the market plummeted, this question arose for me daily - and, the market’s recovery since has essentially answered the question.

If you have conviction about the market’s direction over the next 12 months (bull or bear), and the money you’re thinking about investing is for the long-term, then to me it makes sense to put it to work. Trying to time the market is a mistake, and odds are you’re going to get it wrong.

The logic behind ‘waiting to invest’ during downside volatility is flawed. By definition, it means the investor is waiting for prices to recover (meaning stocks are more expensive) before they feel comfortable enough to buy. That would be like skipping a sale at a department store in favor of waiting for prices to go back up – who is going to do that?  Not me!

The terminology that best describes this mindset is “recency bias.” It refers to an investor’s tendency to think that the trends and patterns we observe in the recent past will continue in the future. In the case of this past August, ‘recency bias’ convinced some investors that downside volatility would persist for several weeks or even months – and that led to cold feet. But, the market doesn’t work that way. Typically, what happens in any given day does not imply what will happen the next. That’s why it’s so important for investors to focus on the trendlines, not the headlines.

For long-term investors, there is also the fact that missing the best days in the market can significantly impact your total return over time. In a 20-year period from 1995 through the end of 2014, an investor that stuck with stocks (S&P 500) throughout could have expected a $10,000 investment to grow to $65,543 – a 9.85% annualized return. But, if that investor missed just the 10 best days in the market (which often happen very close to the worst days that spook investors), the $10,000 investment would be worth much less – growing to only $32,665. Miss the 40 best days, and you actually lose money.

So, when it comes to trying to time the market, remember what that could cost you. I don’t think it’s worth it. This is especially the case if you have long-term growth objectives - in that scenario you are almost certainly better off spending as much time invested as you can. The numbers above prove as much.

Applying this long-term approach to your current, or prospective, money manager is also important. Knowing how a manager fared through both up and down markets is key information as you assess potential working relationships. There are nine other questions which we suggest asking a prospective money manager (many of which you likely have not thought of).  Download the guide now -- it's annotated with responses to look for from these questions.  We hope this helps!

Download FREE Guide:  What to Look for in a Money Manager

Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. Zacks Investment Management, Inc. is a wholly-owned subsidiary of Zacks Investment Research. Zacks Investment Management is an independent Registered Investment Advisory firm and acts an investment manager for individuals and institutions. Zacks Investment Research is a provider of earnings data and other financial data to institutions and to individuals.

After a nice rally into the last couple of months of the year, the Healthcare sector has consolidated those gains in a very healthy fashion. Here is a daily candlestick chart of the Healthcare Sector ETF $XLV in a sideways trading range over the past 2 months with clear overhead supply accompanied by higher lows along the way.

At this point we are waiting for a breakout above this overhead resistance to trigger the next leg higher. The price target is just above 75 based on the 261.8% Fibonacci extension of the September/October correction.

I think this breakout happens soon and we want to be all over it. Tactically we only want to be long above the December highs. Below that and there is nothing to discuss.

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