The Benefits of Patience
Imagine for a moment that you are a spectator at the race between the tortoise and the hare and that you have placed a wager on the tortoise. As the gun sounds, the hare quickly sprints into the distance, while the tortoise is just beginning its first lumbering step. The tortoise - like steady growth stocks - is competitive in the long run, but there are times when the hare will run far, far ahead, and may even hold that lead for a long time. It is at these times you must remain patient. Eventually, the hare will run out of steam - or even begin running back toward the starting line. In recent memory, we have experienced two major hare reversals - first with technology stocks in the early 2000s and then with financial stocks in 2008. In the future, we will certainly experience other such occurrences. If you focus on the steady growth stocks, you can win the long-term race and avoid much of the volatility and gut-wrenching emotion that sabotage the rabbit riders.
Many financial planners recommend 30-somethings keep up to 100 percent of their portfolio in stocks, since they still have decades to ride out volatility. But Salmen said it's important to know thyself. "Even those in their 20s or 30s don't have to go all equities. Statistically, that would probably make you more money, but from a behavioral standpoint, you might not be able to sleep," he said, adding, "A little bond exposure provides stability so you won't get whacked so hard during a downturn and you're less likely to abandon your strategy during a downturn. That's what kills you: selling at the bottom and waiting to get back in at the top."