There are a lot of things in life where the right move is pretty intuitive. Avoid the top rung of a ladder when you’re changing a lightbulb. Don’t click on that suspicious link in your email inbox.
But when it comes to your money, making smart decisions isn’t always so easy. In fact, there are a lot of times in investing where the intuitive move isn’t the best. A stand-out example is risk: For the most part, our brains and bodies tell us to avoid it. While it may seem smart to dial down risk in your investment portfolio, taking a too-conservative approach might leave you far short of your long-term goals. Making sound financial decisions often involves embracing counterintuitive strategies. Let’s explore a few more.
Less Action Often Leads to Better Results
Scenario: All too frequently, news headlines scream about stocks soaring or plummeting. When alarm bells like these ring, your impulse may be to take action. Zoom out and you’ll realize that a doom-and-gloom news cycle is practically a given. Buying and selling investments based on it is not a good idea.
Counterintuitive advice: The urge to act on market movements can be hard to resist. However, investing is a long-term endeavor, and often the best move is to do nothing at all.
Consider the story of the Voya Corporate Leaders Trust highlighted by Jason Zweig of The Wall Street Journal a few years back. Established in 1935, this fund was designed to counteract the speculative excesses that contributed to the 1929 market crash. Its approach was radical: The fund purchased equal shares of 30 stocks and committed to holding them indefinitely. No new stocks could be added, and existing ones could only be sold under extraordinary circumstances, such as bankruptcy or mergers.
Despite being on “permanent autopilot” for nearly a century, the Voya fund has outperformed many actively managed funds—and even the S&P 500 at times. Patience and a hands-off approach can pay off over time.
Your Portfolio Shouldn’t Match the S&P 500
Scenario: When the S&P 500 has had a bang-up year, as it did in 2024—and 2023—you may be tempted to wonder why your portfolio didn’t keep up. In fact, it might lead to what’s known as “tracking error regret,” which occurs when investors second-guess their diversified approach because their returns don’t match a popular benchmark.
Counterintuitive advice: Your portfolio is not built to match the S&P 500, which represents just one slice of the market—the 500 largest U.S. companies.
Instead, it’s designed for reasons that are unique to you, whether it’s funding retirement, paying for kids’ college education or leaving your wealth for the next generation. A well-diversified portfolio is a powerful tool to help you meet those goals. Consider the classic 60/40 portfolio, which allocates 60% to equities and 40% to bonds. While it’s not likely to outperform an all-equity portfolio over the long run, it is structured to provide a buffer during periods of market turmoil.
Remember, it’s not the S&P 500’s performance that matters. What really matters is sticking with the right plan that will help you meet your financial goals.
Embrace the Bear
Scenario: When bear markets happen, it certainly doesn’t feel good. In fact, it may feel like you’re watching your wealth evaporate before your eyes. The impulse might be to cut your losses and sell. But bear markets have a tendency to change course. (In fact, they historically always have.)
Counterintuitive advice: Market downturns provide an opportunity to rebalance your portfolio. Bear markets can be prime buying opportunities. When prices are low, you are essentially given the chance to buy shares of a company or a fund when they’re on sale. You may consider trimming positions in asset classes that have grown and buying more shares in those whose valuations have dropped.
Rebalancing in this way helps you stick closer to the asset allocation strategy that’s at the center of your financial plan.
Putting It All Together
Whether it’s sticking to a diversified portfolio, viewing market downturns as opportunities or making smart spending decisions, counterintuitive strategies can help you stay on track toward your financial goals.
As you reflect on your investments this year, remember that your portfolio is unique to you. It’s designed to meet your specific needs and long-term objectives. And sometimes, the best move is simply to trust your plan and let time do the heavy lifting. We’re here to field any questions you may have along the way.
Multnomah Group is a registered investment adviser, registered with the Securities and Exchange Commission. Any information contained herein or on Multnomah Group’s website is provided for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Multnomah Group does not provide legal or tax advice. Any views expressed herein are those of the author(s) and not necessarily those of Multnomah Group or Multnomah Group’s clients.