STOCK MARKET: TWO STEPS FORWARD, ONE STEP BACK
As originally appeared in The Jerusalem Post on December 14th, 2018.
The Mexican debt crisis, Latin American debt crisis, the crises of the 1990s, the Wall Street stock market crash, and other events should have reminded us, and did remind us, that financial instability remains a concern, remains a problem. Ben Bernanke
As the global financial markets continue their volatile, and mostly down ways, I have been speaking with clients in an attempt to help calm their nerves. The way I have been trying to explain the recent market drop is that markets usually move two steps forward and one step (sometimes large) back. As one client of mine put it, “Over the last 2 years I have made a lot of money, and these last few weeks I have lost a bunch, but if I look back where I was 2 years ago I am still 15% higher now.” I may sound like a broken record but stock investors need to understand that markets can go down just like they can go up. If you don’t have a long-term time horizon you shouldn’t be investing in stocks.
What to do?
What should you do in the face of an upswing in market volatility? The most important step you can take is to make sure that your portfolio is allocated in a way that meets your financial goals and needs. If it is too aggressive, take some profits and sell. If too conservative, take advantage of the market drop to ‘buy low’ and add stock exposure to your portfolio. If everything is allocated properly, the best thing to do is nothing. Just stay the course.
Sallie Krawcheck former CFO at Citigroup and founder and CEO of Ellevest wrote, “We’d all love for the market to go on a tear forever, reaching record highs and blowing minds; but the truth is, downturns are a reality, particularly if you are a long-term investor. The fact that downturns are inevitable can be scary. And off-putting, to be quite honest.” She continues, “That’s why when the market throws you for a loop — as with most unnerving situations — you’re better off by not panicking and sticking to an actual plan instead. One that doesn’t consist of selling everything immediately in an attempt to cut your losses. Because if history has taught us anything, it’s that staying the course may be the best way to make it through a downturn.”
Be in it to win it
In 2017 Morningstar came out with a research report titled “The importance of staying invested.” In the report they look at what would have happened had you invested $100,000 in at the beginning of 2007. Had you sold everything at the bottom of the market crash in early ’09 and then sat out a year until things “calmed down” you would have about $127,000 by 2017, not bad. But had you stayed invested through the entire financial crisis and not sold anything by the beginning of 2017 you would have $195,000!
Stay calm
When dealing with your money you need to concentrate on your long-term goals. As I already wrote, markets go up and down and if you have a current financial plan, it would take this into account and there would be no need to get all nervous. As the Morningstar report shows, the worst thing you can do as an investor is panic and sell everything and then wait for the market to recover. The market tends to snap back quickly. Large market gains often come about in quick and unpredictable spurts, and missing just a few days of strong market returns can negatively impact long-term performance.
Stay calm and tune out the noise in the media. Markets go up and down but the best way to make money over the long-term is just to be properly allocated and stay the course.
The information contained in this article reflects the opinion of the author and not necessarily the opinion of Portfolio Resources Group, Inc. or its affiliates.
Aaron Katsman is author of the book Retirement GPS: How to Navigate Your Way to A Secure Financial Future with Global Investing (McGraw-Hill), and is a licensed financial professional both in the United States and Israel, and helps people who open investment accounts in the United States. Securities are offered through Portfolio Resources Group, Inc. (www.prginc.net). Member FINRA, SIPC, MSRB, FSI. For more information, call (02) 624-0995 visit www.gpsinvestor.com or email aaron@lighthousecapital.co.il.
