Kevin Canterbury is the Founder and Managing Director of Redstone Capital Management in Arizona. As a financial planner and advisor, Canterbury provides a look back at the April market, navigating the challenges and highlighting the importance of strong investments in a volatile market.
The market continues to be challenging, and the world still struggles with the impact of the pandemic. Social media platforms and 24/7 news channels continue to amplify negative stories, feeding into people’s anxieties. During times like this, investors need to be reminded of the importance of putting time in investing.
Kevin Canterbury of Arizona says that April 2023 brought investors’ eyes to topics like time and risk assessments, and the implications and possible downfalls of long-term investing. Additionally, Canterbury touches on JP Morgan’s illustration depicting the ‘average investor’, and what it implies about average returns.
Kevin Canterbury on Time and Risk
Kevin Canterbury of Arizona reports that nothing exemplifies the intricacies of time and risk quite like U.S. Treasury bonds. Though universally considered risk-free from a credit perspective, Treasury securities do actually have some risks that are amplified if the investment isn’t held to maturity.
The Bloomberg US Treasury Index returned -12.5% in 2022, its second straight full-year loss and the biggest in its four-decade history.
If an investor had bought a basket of U.S. Treasury securities or an ETF that tracks the Bloomberg US Treasury Index at the beginning of 2022, before turning around and selling that investment on December 31, 2022, the investor would have incurred a loss in excess of 12%. Kevin Canterbury of Arizona says that this loss occurred despite the fact that the investor held what is commonly referred to as a “risk-free” security.
Long Term Investing
Kevin Canterbury of Arizona explains that the same concept of risk and time can be applied to other investments, such as stocks. Long-term investing, typically defined as five years or more, requires a disciplined approach.
This approach is anything but cut-and-dry. The complex process is comprised of getting personal finances in order, knowing one’s time horizon, picking a strategy and sticking with it, understanding investing risks, diversifying well for successful long-term investing, minding the cost of investing, and reviewing individual strategy regularly. It’s a tall task – but not impossible.
Kevin Canterbury of Arizona says that withdrawing funds early from long-term investments undercuts an investor’s goals. Additionally, it may force the investor to sell at a loss — and can have potentially expensive tax implications. Selling at the time of a market downturn and locking in losses is the worst, most catastrophic decision an investor can make.
An investor must focus on their financial goals and ignore the busybody nature of the markets and media that cover them. Keeping a keen eye focused on personal goals through every step of the process and adjusting them accordingly with market shifts can save an investor from disaster.
Wealth Management
JP Morgan Wealth Management produced a graphical illustration of how the “average investor” misses out on strong “average returns” across various common asset classes by creating additional risks that result in compounded errors over time. This illustration was included in an article written by JP Morgan Global Investment Strategist, Elyse Ausenbaugh.
Kevin Canterbury of Arizona reports that investors must constantly remind themselves that what they hear about the issues causing them the most anxiety are not unique to this time in history. What we view today as unprecedented, dangerous, and corrupt has always existed in one form or another; it was not amplified and delivered to our eyes and ears on a daily basis.
For example, Kevin Canterbury of Arizona reports that from the late 1880s into the early 1900s, many children were forced to work under intolerable conditions. In 2023, though, this is beyond unacceptable in the US, and we understand better the devastating impact that child labor can have. The world’s standards and understandings are constantly changing – and the world of investing is no exception to this rule.
Conclusion
The lesson to take from this month’s commentary is that any time an investor sells a long-term investment, that decision introduces additional risk that can transform a no-risk investment or a moderate-risk portfolio strategy into a highly risky transaction. Investors must focus on their financial goals, maintain a long-term view, and ignore the noise of the market and media.
Kevin Canterbury of Arizona says that while strategic, smart investing is everyone’s goal, it is not everyone’s reality. However, it is always possible for investors to achieve successful long-term investing by following a disciplined approach that involves getting one’s finances in order, knowing one’s time horizon, and picking a strategy and sticking with it.
