The Three Dangerous Times

The three particularly dangerous times for investors: when markets go up, when they go down and when they are flat.

For the last two years, U.S. markets have been in a narrow trading range. Some days the market is up a lot, some days it’s down big. But overall, for two years the broad market is close to flat — up 3 percent a year — a third of the long-term average.

During a long flat period, investors get bored and are often up to mischief, searching for alternatives that promise much and mask danger.

In bear markets — the market often plunges quickly –and  investors are prone to panic and do things that imperil their finances for many years.

When the market is doing well — bull markets — people get exuberant and overconfident and may take on greater risks and obligations than they intend. This sets them up for failure in the next cycle.

Given this bleak picture, what should investors do to improve their odds of success? Investors need to be patient, avoid emotional decisions and think long-term.

None of this is easy but it’s important for a successful investment experience.