I have seen many portfolios over the years and have realized that people are very polarized. In other words, they are either very bullish or very bearish. Their actions prove it. When you see someone who is bearish, they are often completely out of the market. They take their chips and put them in a safe place like their mattress, or in a money market or certificate of deposit. When they are bullish, they are "all in." They find a stock or a certain niche fund (like technology companies or emerging markets) and put all their eggs in one basket.
In and of itself, this is a problem, but it gets worse when they continuously switch back and forth—bearish to bullish and back to bearish.
The solution is to look at the market through two different lenses, one focusing on making money and the other on not losing it. Building a portfolio with both in mind is a lot more rewarding and a lot less worrisome.
If you knew you couldn't lose money, you would build a very different portfolio than if you knew you couldn't make money. What if you had both thoughts in mind when choosing your investments? That would give you a little more risk and a little more safety at the same time.
The way to do this is to think long term and to add more varied types of investments to your portfolio. If we are in a rising market, you would add more stocks to your portfolio. But, looking at both sides of the investment coin, you should also add more bonds in case the market doesn't go straight up. To construct a portfolio that has the best of all worlds, you really need to add asset classes that are not correlated—meaning they don't move in the same direction. The more investments you can add with varied correlations, the less volatile your portfolio will be.
Ultimately, when you build an investment plan looking through both lenses, you may not achieve the same effects as the S&P 500 Index, but your investments will not plummet every five or six years like the S&P.
Remember, investing is not about how much you make, it is about how much you keep!
Good Luck and happy investing.
Kelly Campbell , Certified Financial Planner and Accredited Investment Fiduciary, is founder of Campbell Wealth Management, a Registered Investment Advisor in Fairfax, Va. Campbell is also the author of Fire Your Broker , a controversial look at the broker industry written as an empathetic response to the trials and tribulations many investors have faced as the stock market cratered and their advisers abandoned their responsibilities to help them weather the storm.