It’s easy for me to take a different view of investing. I can be totally objective. I’m not trying to sell you anything. I don’t benefit economically if you follow my recommendations or ignore them.
I hope you find these observations helpful.
Pay less attention in volatile markets
I know it’s counter-intuitive, but you should pay less attention to financial news in volatile markets. Why? Because the amount of harmful misinformation increases.
Articles telling you how to “prepare” for the downturn are inherently misleading. The best way to “prepare” is have an asset allocation suitable for you. If you do, you’ll expect the market to tank periodically and will have planned to have enough liquidity to ride it out.
If you have a broker or advisor who is suddenly calling and recommending you “take action”, here’s the “action” you should take: Fire them and retain a competent registered investment advisor.
“Explanations” about the cause for market volatility would be amusing if they weren’t so harmful. Whatever is “worrying” investors and causing a downturn in the market is irrelevant. Millions of traders already know yesterday’s news. They have collectively priced stocks and bonds to incorporate all that information.
You wouldn’t drive just by looking in the rear view mirror. Why do you care about the reasons why the market reacted as it did?
Here’s a simple, undeniable fact: Tomorrow’s news drives the direction of the market.
Here’s another one: No one knows tomorrow’s news.
The tragic case of missing journalist, Jamal Khashoggi, illustrates my point. No one could predict he would walk into the Saudi embassy in Istanbul and never come out.
It’s also impossible to predict the consequences of potential sanctions against Saudi Arabia, or even if any will be levied.
The Saudi’s have threatened a firm response. They have the economic power to implement their threats. If this plays out badly, it’s likely the market will be impacted.
Given all these “unknowables”, why would you pay attention to anyone who claims the ability to predict the direction of the market?
Doing nothing takes a lot of discipline.
You shouldn’t have any exposure to stocks unless you can afford to hold them for a minimum of 3 years and preferably longer.
Most investors have a time horizon much longer, often spanning decades.
For those investors, the worst mistake you can make is trying to time the market by “feeling to safety” and then attempting to invest before the market recovers. There’s scant evidence even sophisticated mutual funds have the ability to do this successfully.
Here’s a better strategy:
If you are in the right asset allocation, do nothing.
If the market tanks, check your portfolio as infrequently as possible. Take no action. Review your portfolio in a year or so. If you are taking too much or too little risk, adjust it accordingly.
Resource of the week:
I highly recommend this blog post by Larry Swedroe. Pay particular attention to the part headed with: When Doing Nothing is Best.