The markets have been crazy, with huge intraday swings and lots of panicky headlines. Some are saying that the long-awaited bear market is finally here, that trade wars and fading fiscal stimulus are serving a death blow to already wobbly markets. Nobody knows for sure what is to happen next. Nobody. So, we have no choice but to create a really good long-term plan, build our liquidity and rainy day funds (just in case we need the money) and to try to ignore the noise and distractions in the meantime. Beyond that, what else can you consider?
Published by Taylor Financial Group
The markets have been crazy, with huge intraday swings and lots of panicky headlines. Some are saying that the long-awaited bear market is finally here, that trade wars and fading fiscal stimulus are serving a death blow to already wobbly markets. Nobody knows for sure what is to happen next. Nobody. So, we have no choice but to create a really good long-term plan, build our liquidity and rainy day funds (just in case we need the money) and to try to ignore the noise and distractions in the meantime. Beyond that, what else can you consider?
The economy is still growing at 2-3% per year in GDP, and the trade war will likely resolve itself as all parties have a strong incentive to settle it. Having said that, we are in the tenth year of an economic expansion and these things don’t go on forever. Earnings may drop now that the tax stimulus is fading, and the flattening yield curve is not an encouraging sign.
So, what is an intrepid investor to do? Morningstar studies show that lump sum investing is the most successful way to invest for the long term. Having said that, there is a psychological component to investing, and if someone is concerned about market volatility or short-term losses, then dollar cost averaging is a tried and true approach that can keep people invested and on course. We use both methods with clients, depending on their temperament and market conditions. For example, if the market is correcting (as it is now), it could be a good time to buy stocks that are on sale. In fact, we have been doing just that with many clients over the last weeks as we see value in emerging markets and in many beaten up companies here at home. However, if the market or certain sectors are peaking, or you are otherwise worried about short term losses, then dollar cost averaging may be the way to go. Remember that through it all, the market has gone up over the long term, and has beaten inflation over just about every time period. Sitting on cash is usually not a great long-term strategy, although it can make sense for the short term.
They say that the market is always climbing a wall of worry. Although there is a lot to worry about now (and there always has been), we take solace from Warren Buffet who reminds us to be fearful when others are greedy and to be greedy when others are fearful.
Happy holidays! Best wishes for peace and health in the New Year!
Disclaimer: All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful.
Sources:
https://news.morningstar.com/classroom2/course.asp?docId=2873&page=3