How did it feel in both 2015 and 2016 when for the entire month of January, the stock markets (the S&P 500) started the year DOWN 3.1% and down 5.1%, respectively? Isn’t January supposed to be an UP month? It did not feel great then and it doesn’t feel great at any time in the year.
The following is a worthwhile commentary and check list (from a 2014 edition of TGIF 2 Minutes) that can serve as a “gut check” for investing when markets experience months or longer periods of meaningful declines. Even if you have read these before, consider reviewing again for perspective and direction.
Have you asked yourself lately…
- “Is this the ‘Big Dip’ in the markets they have warned about?”
- “Should I be selling my stocks?”
- “Should I be selling my bonds?”
Although it is advisable NOT to listen to the Talking Heads on TV, radio & internet – and then make rash investment decisions – when these media personalities comment on dramatic market moves, we are human! It is nearly impossible to ignore completely what is going on daily in the markets. And the stock markets have crept down a bit over the past few weeks.
Still, I stress to clients and friends: NOT to allow daily, weekly, even monthly market moves to instill fear and lead to poor decisions.
Here is a checklist of why you can – and in most cases should – be able to stick to current portfolio positioning, given you had a plan in the first place:
- Your cash level – Is your level of cash sufficient for your CURRENT (i.e. 1-3 months) bills?
- Do you still have your job? (meaning your income)
- Do you have an Emergency Fund intact (i.e. 6-12 months of emergency savings in the case of job loss or other emergency)?
- Do you have a PLAN in place? For help with what this means, please call me.
- How is your progress toward short-term and long-term GOALS?
- Is your “asset allocation” still roughly intact (meaning your long-term “set” proportion of Stocks vs. Bonds vs. Cash)?
- When is the last time you heard from your Financial Advisor?
- Are you scared? If YES – which is perfectly reasonable – what are you scared of?
- Why are you investing in the first place? Is it for later in life? For retirement, which could/could not be around the corner? Kids’ college? To live on the current dividends and/or interest from your investments?
If you can answer most or all of these questions with positive, rational answers, then there is little to no reason to sell investments in a rocky or down market.
In a down market, if you have been waiting for a “buying opportunity” to invest a portion of cash, then it makes sense to speak with your financial advisor about how to deploy that cash according to an agreed upon “asset allocation”.
Conversely, in an UP market, if stocks have become a disproportionately HIGH percentage of your overall portfolio, perhaps it is time to “rebalance”, keeping in mind any tax consequences. For more on this topic, please call me.
If you find that you are scared, identify what it is that you are scared of.
- Is it “losing everything”?? With history as a guide, the “losing everything” scenario is extremely, extremely unlikely – unless you have an outsize % of your monies invested in a very narrow list of securities or you have most of your monies tied up in a business (as in, you are not diversified).
- Are you scared of not being able to achieve retirement?? Then this is more a matter of how much you SPEND vs. how much your stock or bond portfolio has gone down. OR, it may be a matter of analyzing how much you have saved plus how much you are still currently saving. How long is it until you propose to retire? How much CASH do you currently hold?
- Is it that you will run out of cash?? Do you have a “peace of mind” amount of cash on hand today? Yes, “Cash is King” for that peace-of-mind feeling. Although holding too much cash can hold back a portfolio from keeping up with inflation over the longer-term. Talk with your financial advisor about an intelligent amount of cash to have on hand.
- In looking back at 2015 & 2016 which began with meaningful moves on the downside, the S&P 500 in 2015 closed down only 0.7%for the year — after the first “taper tantrum” with the Fed. In 2016, the S&P 500 finished UP 9.5% for the yearand the S&P SmallCap 600 UP 24.75%.
Back to the present of August 2024, market turmoil may or may not stick around – and likely will. Please reach out for advice and direction and to strategize around investing for the bigger picture, longer-term future.
This material has been prepared for informational purposes only and is not intended to provide, and should not be relied upon for, tax, legal or accounting advice.