Klement on Investing: Consistency Is Overrated

On any given day in the stock market, some areas will perform better than others. That’s true of longer time periods too. On a daily basis, these moves are essentially noise.

Over a longer-term, trends can emerge. But it also goes to show that investors don’t need to worry so much about things like consistency. That’s because, to get to market averages, there’s considerable inconsistency along the way.

One example is how the stock and bond markets have reacted to inflation expectations in the past year. Bond yields started to rise even before interest rates moved higher. And market valuations came crashing down as well.

Human beings tend to look at these inconsistencies through the lens of some narrative. And since they tend to perceive losses more harshly than the benefits from a gain of the same amount, risk aversion can lead to big changes in investor sentiment.

The end result? Investors make different choices during different market conditions. Looking to be consistent can lead to poor results.

The actions available to investors today are a result of their past decisions. Trying to be consistent with past decisions, even as events have changed, can be damaging to investment returns. Investors should be mindful not to be overly cautious or overly risky from trying to tie together their decisions consistently.

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