Counterintuitive Money Advice: Investing Against the Grain
In many aspects of life, the right decision is clear. You wouldn’t stand on the top rung of a ladder while changing a lightbulb or click on a suspicious email link. But the best moves aren’t always intuitive when it comes to investing. In fact, our instincts often steer us in the wrong direction.
While reducing risk in your portfolio may seem logical, being too conservative can leave you falling short of your long-term financial goals. Smart investing sometimes means embracing counterintuitive strategies. Let’s explore a few key examples.
Less Action, Better Results
The Scenario:
News headlines often scream about stocks surging or plummeting, triggering a sense of urgency. It’s easy to feel like you need to react, but history suggests otherwise.
Counterintuitive Advice:
Often, the best investing strategy is to do nothing at all. Investing is a long-term endeavor, and knee-jerk reactions to market swings can be costly.
Consider the case of the Voya Corporate Leaders Trust highlighted by Jason Zweig of The Wall Street Journal Created in 1935, this fund took a unique approach: it bought equal shares of 30 stocks and committed to holding them indefinitely, selling only under extraordinary circumstances like bankruptcy or mergers.
Despite being on "permanent autopilot," the fund has outperformed many actively managed funds—and, at times, even the S&P 500. The lesson? Patience and a hands-off approach often pay off in the long run.
Your Portfolio Shouldn’t Match the S&P 500
The Scenario:
After a strong year for the S&P 500, like 2023 and 2024, you might wonder why your portfolio didn’t perform as well. This can lead to "tracking error regret," where investors second-guess their strategy because their returns don’t align with a popular benchmark.
Counterintuitive Advice:
Your portfolio isn’t designed to match the S&P 500, it’s built to meet your financial goals. The S&P 500 represents the 500 largest U.S. companies, but a well-diversified portfolio goes beyond that, incorporating a mix of stocks, bonds, and other assets tailored to your needs.
Take the classic 60/40 portfolio (60% stocks, 40% bonds). While it may not always outperform an all-stock portfolio, it provides a buffer during market downturns, helping you stay on track with your long-term financial plan.
Rather than chasing the S&P 500’s returns, focus on a strategy that aligns with your personal financial objectives.
Embrace the Bear Market
The Scenario:
During a bear market, it can feel like your wealth is vanishing. The instinctive reaction? Cut losses and sell.
Counterintuitive Advice:
Bear markets present opportunities. When prices drop, high-quality investments are essentially "on sale." Instead of panic selling, consider rebalancing your portfolio—selling assets that have grown and buying those that have declined.
This disciplined approach helps maintain your target asset allocation and positions you for potential gains when the market recovers.
The Big Picture
Counterintuitive strategies—such as sticking to a diversified portfolio, viewing downturns as buying opportunities, or resisting the urge to react to short-term market movements—can help you keep your investments on track.
Your portfolio is unique to you and designed to meet your specific financial needs and long-term goals. Sometimes, the smartest move is to trust your plan, stay patient, and let time work in your favor.
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