One of my clients, when the markets do what they have been doing recently, will call or send an email and ask me to please stop messing around and fix the markets. I feel his pain and I wish I had that kind of power. If only it were that easy.
In 2008, somebody (finally) noticed that the government mortgage programs, and their encouragement of lower credit standards, might have a detrimental effect on the real estate market. Of course, at the time we were also seeing threats of hearings for the oil “cronies” who were supposedly engineering the rise of oil to $100 per barrel (personal note: where are the hearings about prices being too low today?). Today the worries are China, Europe, no credit availability, an extremely tepid U.S. and European economy, and the price of oil being too low.
We have experienced the first market correction in four years. This year has started with a thud. I have chosen not to panic, how about you?
The mistake that some investors made in 2008-09 was selling at the bottom to lock in steep losses. Some were then too nervous to get back into markets as prices rebounded. The result: double trouble. Here are some reminders to keep us all sane during these difficult times:
Market timing fails. Stocks have historically outperformed other asset classes. There are many who have tried and failed to come up with the magic formula for timing the market, but I don’t know of any who have succeeded. Therefore,
Stay disciplined and focused on your plan. If you are young, you have time. If you are retired or nearing retirement, you should already have in place regular income sources (dividends, interest, annuity income, social security, etc.). In any case, allocate according to your age, financial goals, risk tolerance, and current and expected financial needs. If you are able to do so, dollar-cost average more money into the market on a regular basis. While fundamentals are little changed, lower prices make stocks more attractive, if anything.
Proper asset allocation can be a steady hand in a turbulent world. If you have accommodated your own, unique financial situation, then you should not feel pressured to do anything drastic. At times, all asset classes may suffer; but we know from history and common sense that this too shall pass. Resist the temptation to react emotionally and then rationalizing that you will know when to get back in and that you will actually do it. Rebalancing will help you to stay allocated properly, while locking in the “buy low – sell high” mechanism in your portfolio.
If you need to do so, then review your monthly spending plan. When your portfolio is invested properly for your goals, but the markets are not cooperating in the short term, then you can always control what you spend. Of course, you hopefully have already planned to cover your necessary expenses, but some of the discretionary spending may need attention.
Let me know if you want to discuss your income sources, financial plan, and market questions. I am happy to help.
* Past performance is no guarantee of future results. Asset Allocation and Dollar-Cost Averaging does not assure a profit or protect against a loss in declining markets.