There have been many times in world and U.S. history when we have heard the warning signals of hard times to come. Some of these warnings were given with good cause. Churchill warned of the German military buildup, and many in our country (and his own) ignored him. Others, like the many end of the world predictions, have been unfounded (incidentally, if you are ever right about the end, who will be around to hear you taking credit?). Generally, we have managed to get through and triumph over the hard times because we have come up with leaders who saw the long-term, bigger picture, and citizens who kept their good sense. FDR gave his famous ‘the only thing we have to fear is fear itself’ speech. Reagan talked about America as the ‘city upon a hill’ to which the world looked. These were uplifting at a time when this was needed, and although you can argue the policies one way or the other, their leadership undeniably played a big part to inspire the perseverance that Americans showed. Why the history? Because I am reading and hearing quite a bit about the stock market bubble and the crash that is coming. So, are the authors of this information like Churchill, or more like the Armageddon predictors? Honestly, I don’t know; but there are some leaders in our industry who have always known the right approach to take.
Peter Lynch, who is a well-known and admired investment maven, has been known to point out that investors have lost more money over the years fearing a crash than they have ever lost in an actual crash. I am not suggesting a crash, but pullbacks are inevitable in the normal market. There are, however, some things that you can and should do in order to be prepared for whatever is happening out there. I suggest that you think about the following:
- The LONG-TERM! Stay in the proper allocation based on your personal situation. Don’t be a market timer.
- Review your allocation to make sure that you have the right one at present. Meet with me or schedule a phone appointment to review your current financial position and plans.
- Don’t make moves based on reactions to the latest market news article. This almost never works out well in the long run. Remember that those who kept their heads in 2009 are much better off now than even before 2008.
- When the market pulls back remember this: We know the market goes up and goes down, we just don’t know when or how much (tongue firmly in cheek). Pullbacks are a part of the market action just like advances. Long-term allocation matters more.
- Re-balance your plan periodically to lock in the ‘buy low, sell high’ effect. In the event that certain sectors pull back while others advance, this is a wise and easy move.
If you are properly allocated for your plan already, doing nothing really is the right move.
Written by: Ronald Donato
*Asset allocation of your overall investment portfolio does not assure a profit or protect against a loss in declining markets.