How Investors Should Think About the Shutdown — Larry Swedroe

Today we’ll continue our discussion on the shutdown by exploring further the emotions financial crises cause and the risky behavior that can be generated as a result.

One of the reasons investors resort to risky behavior is because they either don’t have investment plans they can stick to, or if they have plans they don’t have the discipline to adhere to them. As Warren Buffett has noted, a main cause of the failure to earn market returns is “a start-and-stop approach to the market marked by untimely entries (after an advance has been long underway) and exits (after periods of stagnation or decline).”

Take a step back now and think what would have happened if each of the 17 prior times the government shut down you bailed out of the market, incurring trading costs and, in taxable accounts, capital gains taxes. Do you think you would have benefited? How would you have known when to get back in?