We understand!  Investing is not so fun right now. It’s like the cruise I went on a year ago with my extended family.  For the first few days it was a blast, but then waiting for hours in the buffet line every day got old really quickly.

We realize watching your account balances decline in value is painful.  The moment the markets start to pick up steam and begin to recover, they turn and we have another couple days like last week (Wednesday and Thursday).

The stock market is digesting a lot of changes right now:

  • Flattening Yield Curve – a predictor of the next recession?
  • The Fed continues to raise interest rates – improving the economy or cause of the market crash?
  • U.S. – China Trade War?
  • Rising tensions between the US and Saudi Arabia – higher oil prices?

Events like these usually wreak havoc on short-term returns.  The particular events vary and sometimes go into uncharted territory, e.g., the Federal Reserve Balancing Act.  (You could Google any one of the above bullet points and get overwhelmed with the information and the editorials – I don’t recommend it!)  However, in the long-run, the stock market fundamentals are the same. The returns of the stock market are based on companies like Starbucks and Southwest Airlines selling their products and services.  Air travel and coffee aren’t going away anytime soon!

One of my favorite financial writers is Ben Carlson. He’s an investment manager and author of the financial blog “A Wealth of Common Sense”.  He wrote the following on August 2, 2014:

Ben Carlson, CFA

“There’s always something to fear that will possibly derail the market — profit margins, valuations, earnings shortfalls, economic growth, rising/falling interest rates, inflation/deflation, geopolitical risks, and the list could go on forever…Investors need to concern themselves with the fact that stocks do go down occasionally. Trying to continually predict the spark that sets it off can lead to more harm than good.”

The stock market goes against every human instinct we have to survive, “Don’t just stand there, do something!”  But you can’t control the short-term ups and downs of the stock market and you can’t time the entry and exit points of a volatile market. There will be plenty of prognosticators on cable news explaining why the market is down, when it will recover or when to expect the next recession.  The truth is; no one knows!  Unfortunately, the people predicting have nothing to lose, only attention to gain .  On the other hand, if you take action on their ridiculous predictions, you could be the loser.

Peter Lynch

“Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections than has been lost in corrections themselves.”
– Peter Lynch is an American investor, mutual fund manager, and philanthropist.

Your Action Plan

Here are a few action steps you can take to reduce uncertainty, increase confidence and sleep well at night:

  • Have a proven investment process in place and stick with your game plan.
  • Understand your risk tolerance and capacity for investment risk.
  • Develop a well-thought-out retirement plan.
  • Review “what if…” scenarios for your retirement.  Best AND worst case scenarios.
  • Don’t speculate or listen to prognosticators – they’ll be wrong and won’t be accountable.
  • Use the market volatility to your advantage.
  • Continue to save and invest – you’re buying shares of great companies at lower prices.
  • Do not let your emotions drive your actions.
  • Know thyself!  If you’re the type of investor to get stressed out or emotional about investing you may want to consider outsourcing this task to a professional you trust (like us!).

We’re here for you in this time of uncertainty.  Please don’t hesitate to contact us with any of your questions or concerns.

What does the Oracle of Omaha say about falling stock prices?

“If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period? Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall, In effect, they rejoice because prices have risen for the “hamburgers” they will soon be buying.” 

“This reaction makes no sense. Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices.”

– Warren Buffett, Chairman’s Letter, Berkshire Hathaway annual report, 1997

Please check out our two-part video series on preparing for the next recession:

Recession Preparedness:  3 Things NOT to Do

Recession Preparedness:  3 Things You CAN Do to be Prepared

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