The Weekly View (9/18/17)
What’s On Our Minds:
There was a good amount of stock speculating in recent weeks as day traders tried to take advantage of the short-term effects of Hurricanes Harvey and Irma. While it may be tempting to speculate how companies’ stock prices may gyrate around these types of events, we believe it’s important to remember that stock speculation is rarely successful over the long term.
Conversely, the investment professionals at Tufton Capital believe that a long-term, buy and hold investment strategy is the to safest, and smartest, way to build wealth in the stock market. Quite simply, it’s been proven time and time again to return exponential gains on invested capital.
Cultivating Your Portfolio
The term “buy and hold” doesn’t mean investing and forgetting about your portfolio for the next 20 years. There are ways to cultivate and prune your portfolio while still maintaining a long-haul investing strategy. For instance, if a company you invest in changes fundamentally, you may not want to continue owning that security. If the overall market changes dramatically, as it has in the past, you may actually benefit from selling an investment or group of investments. Finally, changing goals as you get closer to retirement may warrant a more conservative portfolio.
The typical investor is tempted to get out of a bad market by selling when prices are low, which is a poor strategy. The economy fluctuates between good and bad all the time, and those who constantly buy and sell will be hit the hardest in a bad economy. By holding on to your investments, you’ll be better able to ride out a down market, especially if your portfolio is diversified.
Taxes and Fees
Frequent trading results in higher fees, so long haul-investors pay less while fees eat up much of a day trader’s profits. Additionally, short-term gains are taxed at a higher rate than long-term gains. Even if you have the fortune of timing the market successfully, your profits will be diminished by taxes and fees.
Investing for the long-haul is the best investing strategy for the majority of investors because it not only ensures modest gains but is also less likely to yield major losses. A long-haul investment strategy is based on informed, careful decision making and patience.
Last Week’s Highlights:
Equity markets were strong last week. The Dow Jones surged more than two percent and the S&P 500 was up over one and a half percent. It was the strongest week for the S&P since January. Most of the optimism was spurred by news that congressional Republicans are planning on releasing their tax reform policies later this month.
The Federal Reserve is holding their two-day Federal Open Market Committee meeting this week. It will wrap up on Wednesday and Janet Yellen will give a speech. Investors don’t expect a bump in interest rates but it’s likely that the central bank will hash out how they plan to start unwinding their 4.5 trillion-dollar balance sheet.