Patience in investing applies to many (all?) aspects of portfolio management. If the stock market has an average annualized gain of 10% (it isn’t linear of course) then it will have an average monthly gain of less than 1%. That can breed impatience.
If you believe in asset allocation then you need to be ready for the idea that not every asset will go up all the time (if they all go up at the same time, how much diversification do you actually have?). Last year domestic equities rocketed higher while things like alternative investments and emerging market equities lagged far behind; gold was actually down on the year.
Where things like alternatives and gold are expected to have a low correlation to equities it shouldn’t be much of a surprise that they look nothing like equities when equities go up 30% in a year. Far from invalidating them, that is exactly what they should do but it takes patience while your alternative or your gold fund is lagging to first remember that this is what they are supposed to do and remembering that you don’t own alts and gold to go up a lot with equities but instead to offer protection when things for equities aren’t going as well as they did in 2013.
Of course we can also flip the entire conversation around when thinking about equities during the 2000’s. Equities did poorly while gold and many alternative strategies did very well. Equities were not broken, they had had periods where they had struggled like that including much of the 1970’s and we talked about that at some point they would do well again of course with no idea when and as we sit here today there will come another time that equities do poorly for a long stretch and when that happens patience will again be required.
Patience is required in many aspects of life including wildland firefighting and more importantly to you reading this post, patience is required in all aspect of your investing.
This article was written by AdvisorShares ETF Strategist Roger Nusbaum.