Those financial guys are so full of crap.
They talk a good game. Diversification! Can't beat the returns! But the reality is that they sell you what makes them money, and there is only so much that you can diversify. It's true that it's hard to beat the returns from the stock market, but with those guys (and the government) wetting their beak in your returns, it's not such a great return after all.
Prior to this big selloff, I invested in a consumer staples index fund. It was my recession hedge (diversification!), it keys off of things like toilet paper. Woohooo! Riches! Obscene wealth! Down 18% on the year. How can that be? I played my cards just exactly right. I'm in exactly the right spot, sitting on the goods nobody can buy enough of, at just the right time.
The fundamentals do not matter right now (and I'd argue, they don't matter much ever). It's all irrational, emotion-based nonsense by gambling people. There's no way to really diversify. Sure you can kinda get away from the emotions of one sector or another, but not from broad downturns like this.
The truth is, you really can't beat the returns of the stock market. But to play it you have to play indexes and not pay a pro. I have an account where I pit myself against my professional counterpart. We started with the same money, and I invested it to see if I could out-do him. I loathe to look up the numbers, but I'm going to look them up just for you, so that I can see how I'm doing against him at the worst of times. Ugh... I'm blasted back to my balance in 2017 in my account. Let me check his... omg...
He's all the way back 2015!
So I've been killing him for years with my account. In January I was up 66% from where we started. In January he was up 35%. I'm sure he would say "sure I gained less than you did, but I did it with significantly less risk. You've been risking a lot of loss while I've been playing it safe". But right this second, I'm up 54%. He's up 13%.
Obviously I'm not recommending avoiding the stock market. The gains are too good, and have been for too long. But I hate it, and I diversify out of the stock market (to physical property) heavily.
My "financial guy" doesn't make money from what he sells me - at least not any kind of a commission, only his salary. He works for the bank & simply helps advise on which funds to choose. He isn't "full of crap" at all - he doesn't make any claims about any special investing insights.
I don't count myself as any kind of expert, but I have been investing a lot longer than you & here are a few anecdotal examples that illustrate a few of the the many potential pitfalls of investing that I have experienced.
In the mid '90's, when I first started having a significant amount of money to invest I decided I had to get "serious" about it, so I spent some time reading financial papers to find the best fund to invest in. I ended up with a very highly rated fund that had had stellar results in the preceding 10 years. This fund was based on a "value" concept - seemed like a very sensible approach. What followed was 5 years of a wildly rising market, consistently 25% - 30% gains each year. During that time my fund trailed the market by a huge amount. The market was driven by "growth stocks" & irrational exuberance about the tech revolution - "value" based investing turned out to be a mug's game during that period. When the tech bubble burst & market collapsed at the end of the '90's, my portfolio still went down, less than a lot other growth portfolios, but as I had not made big gains in the interim, I still ended up in a bad place.
After that I subscribed for a few years to the index funds philosophy. I did OK, but not necessarily better than a decently managed fund - & you still have to pay to have an index fund managed. The risk of an index fund does tend to be greater than a managed fund, although, of course, when the market is rising you may very well do better than a managed fund. When it goes down you will commonly experience word losses than an actively managed fund.
For a couple of years leading up to 2008 my investments were handled by a young & innovative fund recommended by a smart acquaintance. Everything was going fine until they weren't. My wife & I pulled our money completely out of the market a little before the half-way mark of the collapse. This turned out to be a good idea ... except, of course, we were slow putting out money back in & so missed the best part of the recovery. I actually started going back in the
actual day the DOW hit bottom - brilliant! - but was too nervous to re-invest much & so didn't reap the amazing financial rewards that would have accompanied full investment at that time. The bottom line: I ended up about where I would have been if I had simply kept my investments throughout the whole of the downturn & recovery.
Over the last 10 years or so my investments have been more fully diversified thanks to the variety of funds now offered by my bank. Progress was slow but reasonably steady, until Trump came along, at which point the US portion of my investments started to do very well. A couple of months ago I went to my advisor & suggested that it might be time to start pulling back. My wife was adamant about it, based on our age & potential exposure & actually went to a much more conservative portfolio. I was sort of talked out of it - although it really was my decision to make & what stopped me, in the end was greed - the hope of making more gains.
Nobody could have anticipated how bad the impact of the Coronavirus would become , but regardless, I should have pulled back from the market at the time because my own common sense indicated that the market - especially the US market - was way overblown.
Now I'm faced with making a decision for Monday. Given everything the is happening, I would be very surprised if the markets did not end up lower over the next week - perhaps a lot lower. Jumping out now will "lock in my losses", but those losses are not that severe at this point & there's always the possibility of getting back in later. In my experience, realizing gains over the market in the long term is an elusive prospect. Even matching the market can be challenging.
Edit: I read that the Fed is reducing rates to .25% on Monday. A Hail Mary for economic stability. I'm doubtful that it will make a huge difference - it sort of signals "desperation". I'm not sure that will inspire confidence in investors going forward ...
