Pot-Bellied Dictators and Your Portfolio
I’m by no means an expert on geo-politics nor am I a soothsayer on how the North Korean aggression is to play out with the world economic system, but what I do know is that I don’t like trying to chase down every distraction that may cause the markets to flinch every now and again.
The most important things to investing for the long-term are not only the fundamentals of the investments (earnings, profits, return on equity, etc.) but also to have a well-diversified portfolio. If we invest in fundamentally healthy securities and do so over a broad base of investment types, then regardless of what a two-bit despot says, from day to day we should be ok for the long term.
Furthermore, one of the worst moves an investor can make is to trade out of fear. Our minds have a tendency to predict the worst possible outcomes (it’s a survival mechanism from way back,) and the part of our brains that govern more logical thinking usually takes a back seat to the fear based mental processes. This means rash decisions made in an attempt to protect our savings are usually based on irrational, emotional responses. All things that are detrimental to long-term financial success.
Finally, because there are millions of investors out there that don’t understand not to trade out of fear, we are seeing some volatility in the markets. This isn’t changing the fundamentals of the investments, however. So, when the fear subsides and reason returns and all those active traders who fled the market because the sky was falling come back, will you have capitalized on their fear? For the prudent investor, this may be a buying opportunity while others run and hide.