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What Type of Investor are You?

After the devastating 2008 recession, an incredible decade-plus recovery period still showing life moves into 2020.  What should investors think?  It depends on whether you are an investor with a long-term perspective or an emotional investor who moves with daily events.  2019 spoke to both investor types.  Leading up to the start of 2019, fourth quarter 2018 had investors second guessing their optimism as stock and bond markets plunged, with both markets negatively ending the year.  The headwinds were lined up like an orchestra brought in section by section by the conductor.   Unfortunately, the music wasn’t what investors wanted to hear.  By late January 2019 the Federal Reserve sounded a new tune to the delight of investors.   The Fed reversed course from raising interest rates by beating a new drum and began a rate reduction strategy which was music to investors ears.  The S&P 500 soared to record levels, ending 2019 up 30.43% following the 2018 negative return of -6.59%.   

Although 2019 saw multiple new highs in many indices, investors shifted to bonds over equities by almost a 4 to 1 ratio according to Morningstar Inc.[1]  This could mean both emotional investors are getting nervous or long-term investors are taking profits.  We tend to be in the long-term investor mindset.  As we have seen time after time over the decades of advising investors, markets can move quickly in either direction due to changing circumstances around the globe.  Economists can sometimes be right on in their forecasts and other times completely wrong.   During 2019, we saw estimates ranging from 25%-75% of a recession in 2020, however most economists are now changing their forecast to a recession in 2021, or not at all.  

Managing risk should be part of a well-diversified portfolio.  Emotional investors look at risk from a short-term reactionary view while long-term investors look at what opportunities have presented themselves and how it might benefit them.  The emotional investor might feel like they have been whipsawed if they pulled money out of stocks in anticipation of a 2019 market decline.  The long-term investor knew why profits were taken in 2019.  They weren’t trying to time the market but looked forward to using the money in the near-to-intermediate term; they recognized that profits come and go quickly as the economic environment changes.  

No one can know what the markets have in store for investors.  As seasoned investors and advisors we know we should not be reactionary.  At Legacy Financial Advisors we know that having a well-balanced, diversified portfolio and being prepared for an unexpected event is key to successful investing.  We know we can’t remove emotions when investing, but we can hopefully help you to control them. 

The journey into 2020 continues with different themes but with the successful investing philosophy we have developed over the past decades.  We thank you for allowing us to advise you whether you are a long-time or new client.   We look forward to your questions and appreciate the continued trust and confidence you place in us.  


Thomas L. Menzel, CFP®                                             Laura Biermann, CFP®
President                                                                       Vice President

[1] Pensions & Investments: Charlie McGrath November 12, 2019

IMPORTANT DISCLOSURES:  The opinions presented in this communication are subject to change without notice and no representation is made concerning actual future performance of the markets or economy.  Information obtained from sources is considered reliable but is not verified.  The research and other information provided herein speak only as of its date.  We have not undertaken and will not undertake any duty to update the research or information or otherwise advise you of changes in the research or information.  Performance information presented is not an indication of future results and index data is provided for market reference purposes only.  This is not an offer to buy or sell or the solicitation of an offer to buy or sell any security/instrument or to participate in any particular trading strategy.  This document is the property of Legacy Financial Advisors and is intended solely for the use of the Legacy client, individual, or entity to which is addressed.  This document may not be reproduced in any manner or re-distributed by any means to any person without the express consent of Legacy.  This material is for educational purposes only.  Mis-transmission is not intended to waive confidentiality or privilege.