It's happening again. Sure as the sun rises when financial markets perform well investors begin to throw extra money at stocks and ignore dutifully constructed and timeless advice for their overarching financial plans. Whether it's extra cash once put towards credit card debt that is now directed toward Nvidia stock, first home down payment monies regularly contributed to a high yield savings account now pushed into an S&P 500 index fund, or "Emergency Reserve" funds once invested conservatively now invested more aggressively, the theme is largely the same. And usually, so is the outcome.
The fact is, when it comes to investing, human emotions are as old as time. When things are going well, and returns are strong, we tend to overestimate the likelihood that positive returns will continue. Similarly, when performance is bad, we overestimate the likelihood that poor (negative) returns will continue. Legendary investor Warren Buffet is fond of saying the stock market is the only place in the world that when items go on sale, people run OUT of the store. For the last eight months now we've seen the opposite. Prices have risen in a near straight line as more and more investors show up each day to pay an ever increasing cost for the (largely) same item as yesterday.
Are you one of them? If so, take a step back and ask yourself if what you're doing is part of the financial plan you (or someone else) constructed when emotions were calm and your thinking clear? If it's making the same monthly contribution to a Roth IRA that you've made for the last ten years, great, continue doing it. If it's redirecting money from a high interest debt to an investment you think will surely double in six months, then reevaluate. Yes, sometimes plans (and goals) change, and that's alright. And yes, there's something to be said for using momentum and price to your advantage. But if the plan or goal your investments were made for is the same now as it was in October 2023 and you're thinking of changing the vehicle you're using to accomplish that goal, then go for a walk and take a cold shower - you're doing it wrong. Because I can tell you that the sun will no doubt set in the west and the market will go down again, and when that time comes, you don't want to be the one who let short-term investment returns overrun sound long-term financial planning.
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