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The Pain Of Patience: How Excessive Short-Term Focus Hurts And Ways To Combat Our Tendencies

The Pain Of Patience: How Excessive Short-Term Focus Hurts And Ways To Combat Our Tendencies by Fund Evaluation Group

by Gregory D. Houser, CFA, CAIA / Senior Vice President, Capital Markets

"Despite the best of intentions, investors often fall short of their long-term goals due to excessive focus on the short term."

The U.S. equity markets have been on a tear. I am not referring to the short-term performance year-to-date, but the short-term performance of the past three years. U.S. equities, regardless of the index selected, returned approximately 20% annualized since June 2012. Despite double-digit returns from developed international equities over the same period, weakness in emerging markets and just about everything else has led many to question their holdings.1 Much like those investors that felt left out and wanted to jump on the tech-fund bandwagon during the late 1990s (we know how that ended), many investors have similar reactions to recent performance today and have considered abandoning diversification for an S&P 500 Index fund, if only for a minute. I would not be surprised if many of these investors also considered abandoning equities during the financial crisis, because these reactions are only natural, and no one is immune.

Counter to the feelings of missing out on recent strong performance, 2008 and early 2009 was a stressful and painful time to be an investor. Daily equity market declines of four to five percent were almost commonplace. Declines of this magnitude created stress throughout the...


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