What do you think about the market?
Anna and I have received this question several times in the past couple of weeks as more volatility than the recent normal was being experienced in the stock markets.
Our answer, as it’s been for a very long time, is that markets go up and down. The housing market, commodity markets, bond markets and stock markets are all subject to various forces that impact prices.
Commentators who talk to traders and investors, or other commentators, often cite issues that suddenly surface and seem to be the cause of a market reaction. Do they really know what’s behind a market move? We mostly doubt it. It’s always after the fact that they’re so smart. Their crystal ball doesn’t work any better than ours.
So what should you do?
- Stay the course. Which means you keep your asset allocation within agreed upon limits. It’s not a buy and hold, it’s buy and hold to a percentage.
- Understand there are diverse opinions about what companies; governments and investors are going to do next. Will profits go up, will companies merge, and will governments approve mergers and drugs? These are the kinds of questions and answers where the markets reflect the majority opinion with purchases and sales of securities.
- Take the long view and look for opportunities. Last week I put all the cash I could find into the two asset classes in my portfolio that were down the most. I did it on what I felt was a bad day in the stock market. I know what over any 5-10 year time period I will be ahead. It’s just a matter of time and taking the long view.
- Keep 2-3 years of cash in non-market holdings like CDs and high yield savings accounts so you don’t need to sell securities in a “down” market. This strategy has helped most of our retired clients sleep at night knowing they don’t have to worry about the markets.
- Tell your family, friends and neighbors not to worry, enjoy doing things with them, and that you love and respect them. This has nothing to do with the markets, but in our opinion, is a better use of your time than worrying about the markets.
Of course Anna wanted to add a few of her own thoughts here as well:
- I’ve made a new rule: every time I hear comments about the market such as “bad”, “down”, “crazy”, “volatile” or anything along those lines, I am BUYING! You might wonder exactly what??! The losers:) Take a look at the latest market report courtesy of The White Coat Investor! Year to date, only 4 asset classes in the negative! That’s your signal:)
- One of my favorite behavioral finance authors Carl Richardson @behaviorgap wrote an awesome article a few days ago. I am implementing his strategy! I signed up for Acorns. No, I am not promoting this company, just the fact it allows me to practice what we preach!