What You Need to Do to Survive the Next Big Disruptions
Over the past several months there have been a lot of conflicting headlines coming from all directions; “stocks are going up”, “watch out, we haven’t hit bottom”, “time to buy bonds”, “look out for bond defaults”, and the list goes on and on. Should you buy? Is it time to sell? What should you be doing now to achieve your goals and objectives?
Confused? Stressed? You are not alone!
Here is a headline from a financial website that I use to for research: “Stocks could fall a further 7% after last week’s correction, but the bull market will return in earnest.”– Morgan Stanley.
The article went on to say “We maintain our positive view for U.S. equity markets because it’s early in a new economic cycle and bull market. Last week’s correction was overdue and likely has another 5-7% downside. It’s healthy and we are buyers into weakness with a small/mid-cap and cyclical tilt,” the investment bank’s strategists said.
Can you tell me exactly what they mean by this statement? I think it means they are confused and want to be on both sides so they can say they were right! Did you even know we had a bear market and are now in a new bull market? No wonder it is hard to figure out what to do.
Volatility is Going Up, Am I Making Any Money?
I am hoping to provide some perspective regarding risk versus reward when it comes to the stock market and growing your wealth. We are told over and over that it is “time in the market” not “timing the market”. We are told in today’s low interest rate environment that we must invest in stocks, or we will not get ahead.
Recently I have been seeing a lot of client account statements from their other advisers or their retirement plans at work, and I have noticed at how most of their balances seem to be mainly the money they had contributed, with very little, if any returns.
What’s Happening With the S&P 500
So, I took a look at what the S&P500 has done since January 1, 2000 to today. On that first trading day of the new millennium, the S&P 500 closed at 1399 and closed today at 3066. That seems like an impressive gain but works out to a compounded rate of growth of less than 4%!
That explained a lot to me. I would ask you the question, is all the volatility and stress worth it to make 4%?
To help you make good decisions, here are 5 things you can do NOW that can help you shut out the noise:
- Know Your Why. Once you know why you are investing, choosing the right tools gets much easier. Is this money to start a business, buy a house, retire, pay for education? Knowing these answers and deciding on the time frame you have is the first step in keeping you focused on what is important. If you were going to build a shed, would the first tool you take be a power sander? Probably not.
- Listen to Your Gut. A few weeks ago, I was speaking with someone who had been recently referred to me. She told me that back in January, everything was making her nervous, so she sold everything in her retirement account and put it into the money market. She was worried she made a mistake, I told her she made a better call than most of the pros on Wall Street! Just because you are not a “professional”, does not mean you can’t make good decisions. Nobody will ever care as much as you do about your financial security, keep that in mind. Your gut can be your best adviser! Control your Fear Of Missing Out (FOMO). Jumping in late because everyone is making money will usually end up with a loss.
- Don’t Over Analyze. Especially in today’s information overload world. Looking at the article I mentioned in the beginning, how could you possibly use that conflicting “analysis” to make a long-term decision? I have seen new clients who want to understand “everything”, then go out and read everything that comes up on Google. They are then frozen from making decisions as they feel overwhelmed and don’t want to “make a mistake”. Not making a decision is still a decision to stay where you are. You need to ask yourself, “is my current position the best one for me”?
- Look Forward. You have heard the line, “past performance is no guarantee of future results”. I think this may be truer now than it has ever been. There are so many things going on in the markets and economy that we have not seen before. The economy shut down in a very short period. Debt has grown at a faster pace over the last several months (really back to last fall) that at any time in history. The stock market appreciation since 2008 has really been fueled by lots of Fed liquidity and cheap money. For this to keep going, we will have to add more and more “fuel”. Contrary to what many believe, this cannot go on forever. Eventually you must pay back what you borrow or suffer the consequences. There are many headwinds to prevent stocks from the kind of performance we saw just last year (stocks up around 30%). In order to succeed in the coming decade, you will need to be more nimble and look to broaden the kinds of investments you are using in order to succeed. I can help you discover new tools that will allow you to thrive in this new environment and show you how to use them to your advantage.
- Have a Plan. The 4 previous steps should clear the way for you to put together a plan to secure your financial future. The plan will help you decide if something moves you closer to your why or takes you on a detour. The plan does not have to be hundreds of pages, but it needs to be clear, understandable, and relevant to you. If you have that in place, everything will slow down and make your decisions easier and likely better.
Block Out the Noise = Reduced Stress and More Confidence
As the noise gets louder and the voices shout over each other, remember to find that place of tranquility and block out the noise. This will help you to get where you want to go, with a lot less stress and a whole lot more confidence. If this is something you would like for yourself, we have the resources to help you get there. Sign up for our newsletter or call the office at 415-331-9030 to keep you on the right path to “Retire Happy”.
Roger holds the coveted and well-earned designations of Chartered Financial Consultant (ChFC®) and Retirement Income Certified Professional (RIPC®) from the American College. He is also a licensed insurance agent for life and health insurance and a Certified Paralegal for Estate Planning.