Are You a Proactive or Reactive Investor?
Wealth is always In Formation and the quality of the information that you receive and act upon, shapes your long term success. Keep in mind the key words “act upon” as you read on.
Investing is a long-term endeavor and fortunately, has been a positive experience for many investors for the past few years. It’s easy to participate in volatile investments when the volatility is to the upside! It’s also a good time to be reminded that volatility to the downside is inevitable, and an expected part of the investing process. I like to remind my clients of that expectation when things are going well so that they do not stress when the direction turns: they’ve been prompted not to be reactive.
Thinking back to 2022 reminds us that participating in equity, bond and even alternative investment markets required a tolerance for volatility. I always say, half-jokingly but with 100% truth to my clients, that we all like volatility when it is to the up-side, but the downside fluctuations are where our patience and our portfolios can be tested. When this happens, and it will, remember to hang in there. Investing is for the long-term, not to be confused with day-trading, where one would get in and out of their investments with swift reaction to short-term events, potentially missing out on some of the best days.
Over time, we’ve gone through both large and small bouts of ups-and-downs in markets mentioned above. We all remember the large decline of 2007-2008 and the great recession that ensued. Follow that up with the rebound of 2009 and extended bull market that not only recovered the losses that markets experienced but went on to propel investment portfolios to new highs. Stretch your vision to the past two decades and you’ll find that over the 20-year period ending December 31, 2025, the S&P 500 returned approximately 10% annually. Missing just the 10 best trading days during that period would have reduced the annualized return to roughly 6%. Perhaps even more telling, 7 of the 10 best market days occurred within two weeks of the 10 worst days. This illustrates why attempting to time the market can be so challenging: some of the strongest rebounds occur when investors are feeling the most uncertain.*
Proactive investing may be synonymous with active management, of which there are different styles. Our models blend fundamental analysis, technical indicators, and valuation (price) into the decision-making process. Actively managed portfolios invest in certain sectors of the market and avoid other areas, with an outlook of anywhere between several months to a few years, making adjustments as the forward outlook changes. Conversely, being reactive would be looking back at what just happened, basing your decisions from the view in the rear-view mirror. Sometimes, investors are reactive to the point where they get out completely until things “settle down”, not realizing they are risking missing out on potentially some of the best days ahead. Ask yourself, are you a proactive or a reactive investor?
*Source: J.P. Morgan Asset Management, Guide to the Markets, 2025/2026 edition. Analysis of S&P 500 returns over the 20-year period ending in 2025.
