All Posts By Michael Lecours, CFP

There’s a great scene in Jurassic Park where Alan, Tim and Lex watch a stampede of dinosaurs suddenly change direction and head right toward them.  What made them change direction?  What made them decide that this new direction was any better?

Turns out investors do the same thing, just with their investments.  As they sense other investors moving into the market, they follow. As investors move from bonds to stocks, others follow. There is a perception that there is safety in numbers. Both dinosaurs and investors tend to act as “herds”.

Problem is that it’s a misperception. Following the herd can cost investors in the end.

Remember to stick to your investment strategy and don’t follow the heard… they could be headed for a cliff and not even know it.

With the equity markets reaching all-time highs, you would think everyone on Wall Street would be dancing in the streets. Nope!  They’re using this time to talk about all the reasons why we’re in for a big correction, down turn, or crash.

This shouldn’t be a surprise. It’s never clear sailing when it comes to investing. There will always be issues that make investors nervous. And the markets will always experience recessions.

But investors might forget that the markets do this funny thing when everyone is expecting the market to rise (or fall)… it might just do the exact opposite of what we expect.  Despite all of the expert opinions and the number crunching, there will always be the human equation to factor in and that’s hard to capture. Perhaps all this fuss is just noise and the markets will continue to climb.

Bottom line: Your portfolio should be ready for anything at any point in time.

Much of the attention over the last few months on the effects of interest rates and bond tapering on your portfolio focus on the immediate consequences – a decline in bond values.  But rising interest rates can be good for your portfolio over a longer time period due in part to reinvesting interest income.  Not to mention, it is a strong signal that the US economy can come off of life support.  See the chart for details.

So why did investors leave bonds during this summer? Could it be that investors are afraid another recession is around the corner and don’t have confidence in the markets?  Perhaps they are looking for a reason to sit in cash willing to wait for more clarity to come from the Fed.

That could be a costly mistake… just ask those who are sitting in cash since the Great Recession.

What a missed opportunity.