No matter how hard you try, some days just aren't that great for your portfolio. Here's my Grow Your Dough report for July 2014.
One of the arguments for taking a long-term approach to investing, and focusing more on index funds than choosing individual stocks, is that it enables you to kind of ignore some of the static that comes when you pay attention to the day-to-day fluctuations of the stock market. This was brought home to me on July 31, 2014, as I checked my Grow Your Dough investing challenge portfolio?balance.
I felt a little trepidation because I checked Marketwatch for the day's stock results before logging into my investment account. This is what I saw:
It's true that the last couple of weeks haven't been super-fantastic. Since my portfolio is mainly comprised of stocks, the fact that stocks have been struggling lately isn't helping. Wall Street?no-likey interest rate hikes. The low interest environment is about to change. Plus, the world's geopolitical challenges are a big issue, too.
But, hey, at least I'm still receiving dividends. So there is that.
So, after being super-excited about watching a mostly-growing account value for months, I ended up seeing this, thanks to a few bad days in the month of July:
I really can't complain, though. Even though my July results are lower than my results have been for months, the truth is that I'm still gaining ground. And, over time, my boring fund investing strategy is likely to put me firmly ahead over time. This looking at my account once a month is warping me a little bit. In fact, I now go look at my Betterment account, even though it's not part of this investing challenge, every month after I check my challenge portfolio. Normally I go months and months without checking my Betterment account, or checking the investment account I use as an emergency fund.
Don't Get Caught Up in Short-Term Volatility
One of the pitfalls of investing is getting caught up in short-term results. On the one hand, you can feel super-awesome if you are (for a brief time) “beating the market.” I usually compare my performance to the S&P 500, since I usually invest in S&P related assets. You can see that my performance through this challenge often mirrors that of the S&P 500, which isn't really that surprising. My biggest holding is in an international S&P fund that pays dividends. (Dividends! Woo!)
There are some non-equity holdings in my portfolio, though. While the bulk of my challenge portfolio is in equities, I also have real estate (in the form of a Real Estate Investment Trust), commodities (fund), and high-yield bonds (fund). On July 31, the only holding in my portfolio that was up for the day was the bond fund. (A relatively strong dollar has Not Been Good for commodities lately.)
Today, because I'm a glutton for punishment, I'm checking in with my investing challenge portfolio. Not surprisingly on a day when the Dow is tanking, and everything has gone to pot, my portfolio has lost a little more than $13. Even the bond fund is losing ground today. *Le Sigh*
My performance with the portfolio overall still beats the S&P 500, but that doesn't make me an investing genius. Instead it means that I'm getting a little extra by adding diversity to my portfolio. Over time, my portfolio is likely to do reasonably well (I think), even if it isn't sexy enough to “win” this challenge. (Some of those taking bigger risks and getting away from stocks altogether are ahead.) But I'm not placed too badly in our field of participants. What really matters, though, is the fact that I'm earning dividends — $30 since the beginning of the Grow Your Dough challenge. That was the point of this exercise, after all, and I am happy that I've been able to reinvest a lot of the dividends to make room for future growth and (hopefully) income.
So, even though the short-term volatility of the market is somewhat depressing, the reality is that, in the long-term, a thought-out and boring investing plan is likely to work well over time. If your main aim is building long-term wealth, you are likely to do better than if you constantly trade. It's been a little harder for me to keep my feelings in check during this portfolio challenge, since I've been checking my investments more frequently. But so far I've managed ok, and hopefully I'll see better success overall going forward for the long-term.