NEW YORK (MainStreet) -- Wall Street thrives on churn. The institutional money runners, high-frequency trading algorithms -- and to a much lesser degree, misguided retail investors -- indulge in the feverish practice of “reflex investing.” Last year, the Securities Exchange Commission estimated that trading triggered by algorithms accounted for more than half of all market volume for U.S.-listed equities. No wonder the market burns to the ground one day and resurrects the next.
It’s important to remember that in a world of lightning-fast trading, there is always an “expert” on both sides of each buy and sell. So the wise guys who sold in fear yesterday are desperately trying to get some of their money back today.
For an individual investor, treading water in a market pool managed by machines, the challenge is to swim among the sharks when there’s blood in the water. What is the right investment mix for such a volatile market?
Go with the flow and avoid a crash
Think of it this way. It’s a bit like driving in a traffic jam. No doubt, you’ve seen the impatient drivers in the loud and low-to-the-ground cars who punch the accelerator into narrow openings ahead -- and then slam on the brakes to avoid a collision with another high-speed traffic gamer jockeying for the same position. Meanwhile, you just go with the flow – making just as good time, without running the high risk of a wreck.
For those of us who are merely carbon-based investors, the principal is the same. Ride with, not against, the market and take what it gives you.
An investment portfolio built to last
That means the best investment mix in a down market is the same as the one built for a rising market. Because from one day to the next, no investor – not one with a pulse or merely plugged in -- knows which way the market will swing next.
An investment portfolio built to last extracts a fair profit in good times and offers sufficient protection from loss in bad times. You can’t have all of the upside and none of the downside. Nobody can.
If your investment strategy considers your needs, comfort with risk and reward, and balances expectations with intentions, then it’s the right portfolio for today. And, when adjusted only for tangible changes in your sensibility or situation, it will be the right one for tomorrow.
Reality-based, not reflex, investing means you had the right portfolio for the last six years of the bull market -- and have the right one for the next six years, whatever comes.