Here’s a new video to watch about trying to time the market which is a great temptation at times like these.
The S&P500 is down 10-15% from recent highs. These are normal and expected by the way.
We are looking at rebalancing. We have no idea how the market will move - but we know that if we trim our portfolios and put more into stocks, then will the market moves up next week or a year from now, those share will give our portfolios a boost. If the market tracks down even more, and it’s enough to justify rebalancing again, then we will. Our clients have profited significantly over the years to this reasonable approach.
When stocks track down, their risk drops - the lower it goes, the lower the risk. Easy for me to say as you’re watching the doom’n’gloom news.
If you are saving for retirement and can accelerate your 2022 retirement account contributions expected later this year, that would be a good move. But simply sticking to your regular retirement savings schedule is awesome too.
No one can predict how the market tracks on its way up long term. So we prepare for that. If you’re in retirement you have 2-3 years of cash needs in safe places. If you’re saving for retirement you smile because shares your money is purchasing now are at a discount to what they were a couple months ago when they were at record highs. It’s that simple.
The problem is that even though we know logically, that the market is supposed to go down at times - emotionally it is challenging. Everyone has their own method to deal with the emotions that come with watching shares prices move down. Some people just look once a year. That works well. I like to look at past history of similar situations and see how the market responded.
Mysteriously we don’t seem to have any problems with the market going up.
I remind myself that, so far, with around 100 years of experience, we know the market returns to an upward trajectory and hits new highs. This is despite depressions, world wars, nuclear bombs, high interest rates, low rates, high inflation, low inflation, Democrats and Republican, etc. The world is busy creating news headlines constantly and it’s not ending!
I also encourage my clients to think long term. Recently a new client complained that his shares were down $30-40k recently. I reminded him that his shares were actually up about $150k since we started working together about two years ago. We invest for the long term, not the last few weeks or months or even last 2 years. Investing is a 3-5 year exercise minimum. Otherwise you’re talking about speculation not investing.
Unfortunately the financial news mainstream fosters a incorrect view of investing that causes millions to have poor experiences. Once you understand it - it’s easy. Highly diversify, be patient over years - you will make a ton of money. It’s harder to accomplish because of emotions and the propensity to “take action”.
Not taking action IS taking action! Small adjustments rebalancing is also taking action. Accelerating annual retirement account contributions is taking action.
Notice I haven’t spent any time talking about where the markets will go from here - that’s on purpose.
Here’s a theory that I heard recently that makes sense. Often geopolitical events are “used” by the markets to make adjustments. History shows markets are up to new levels 6-12 months after a geopolitical event.
Our economy was in a very brief recession in 2020 caused by an artificial shutdown - the government reaction to a virus,. Then the government pushed massive stimulus into the economy - propped up an already great economy causing inflation. Now most of that stimulus is gone and the government is going to raise interest rates. The economy is going through a transition from propped up to operating on its own merits. That necessarily causes volatility in the markets.
It’s like you’re in a great American automobile race from San Diego to New York. You get on the road and drive the path. Steady as she goes. If you decide to get off in Tulsa because you think there is a bad traffic jam, everyone else gets ahead of you. When you think the jam is cleared - maybe it is, maybe it isn’t and you’re behind. In investing, the history proves the winners just relax in the traffic jam since they are poised to take off again when it clears. They will arrive in New York first.