2015, what a year — especially if you like roller coasters. Even though the markets rose and fell, they provided plenty of opportunities for investors to take away some valuable lessons.
Here are three of my favorite lessons from 2015:
1. Don’t wait for interest rates. As a financial advisor for 16 years I consistently heard, “I’m going to wait and see what happens with _____.” This year it was easy to fill in the blank with one word: “interest rates.” All we heard in 2015 was that Janet Yellen and company were going to raise rates, but for 11 and a half months it never happened. That was long after most experts predicted.
While bonds fell because of the threat of an interest rate increase, we never saw the monster drop that we were told was coming. Mortgage rates also stayed largely stable all year. CD rates barely moved.
The lesson? If you have interest rate-sensitive transactions, make them now. Don’t wait for the future because rates might rise again. Also, don’t bet on investment categories based on what might or might not occur in the future.
2. Don’t panic when storms hit financial markets. In late August, investment accounts rocked, correcting after big dips in China, which sent some investors to sell in a panic. In fact, markets rebounded after the crash, meaning that those who sold locked in some large losses.
This shouldn’t have been a surprise. Markets often rebound as sharply as they fall. This often happens after many periods of extreme uncertainty, like the Sept 11 terrorist attacks. Selling during a financial panic may signal that you haven’t done enough to prepare for a downturn.
The lesson? In this case, there are at least two: 1. Know what you own in your mutual funds and exchange-traded funds. If you know the types of stocks you own, and they’re large companies, you’ll know that these companies stand the best chance of weathering the storm. 2. Being diversified will protect you. When markets drop, it’s time to hold on or buy, but it definitely isn’t a good time to sell. Rather than lose everything by selling, it may be time to rethink your financial plan.
3. International markets are still (really) risky. Many pundits said China was going to be a top place to invest — and it still may be — but this year investors experienced what it’s like when you throw in financial turmoil, a foreign government and investor unease. When you invest overseas, there are different rules. The iShares China Large-Cap exchange-traded fund, which trades in large Chinese stocks, has lost over 10 percent of its value this year. While that may be a large loss, it demonstrates again that swings in developing markets are unpredictable and violent.
The lesson? Invest internationally, but be prepared for volatility. Past events have demonstrated that the world is becoming a more global economy every day, and many international investments stand to gain from this. However, this year proved that the road to globalization is bumpy and unnerving unless you’re willing to take the long view.
Overall? 2015 was a year that long-time investors will find dollar cost averaging beat trying to time markets. It again proved that economists and soothsayers are wrong as often as they’re right when predicting market swings. It also shows that starting with your financial plan instead of “what’s hot this year” is probably a better path for 2016.
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3 Lessons for Investors From 2015 originally appeared on usnews.com