The above video looks at some of the tips that were given in the article published below and whether they would have been worthwhile.
WHY DOING NOTHING IS THE HARDEST BUT HISTORICALLY THE RIGHT THING TO DO
This week has so far seen a 12% fall in the value of the S&P 500 since it’s all time high just a few days ago and the most tempting thing for investors to do is to SELL SELL SELL. But why is that probably the worst course of action?
Everybody is talking about it right? Your friends have sold? You see Bloomberg or read the FT and there are panels of people predicting that the worst is yet to come – so why is selling such a disastrous strategy to adopt historically?
THE MARKET KNOWS MORE THAN YOU. Markets are highly efficient giving people the ability to trade in seconds. Algorithms scrape the internet looking for headlines and information before automatically placing a trade based upon the information they find. Investment firms have people everywhere monitoring the situation on the ground and reporting back in second by second. Everybody has access to exactly the same information at exactly the same time – that is the whole point of the fair system. Speed, quantity and quality of information is huge. Therefore, it is important to remember that every bit of news that you see, hear or read is ALREADY IN THE PRICE.
YOU HAVE TO GET LUCKY TWICE. If you want to sell out then not only do you have to select the perfect moment to sell (which was a week ago so you’ve already missed it) but you also need to know the perfect time to buy back in (which could have been at the close of yesterday’s session for all you know). This involves you making 2 decisions based on very little data and hitting that jackpot twice in a row which is highly unlikely.
THE SYSTEM WANTS YOU TO TRADE. Remember that brokers make money whether you sell at a gain, a loss or flat. All they want you to do is trade as they take a commission or a fee every time that you do it. The advertisement, the media, the general chit chat is all geared towards making you feel as though you have to do something so that everybody gets paid. The only loser is likely to be you. Do not buy in to it.
THE BEST DAY MIGHT BE TODAY AND MISSING IT COULD BE DISASTROUS IN THE MEDIUM – LONG TERM. This is the key, overarching point. Missing the best days in the market has a significant impact upon the value of your portfolio over the medium term. Indeed, if you take data from 1980-2018 then missing just the best 5 days in the market during that period would have reduced your returns by a whopping 35%!! The fact is that when everybody around you is panicking then it is your opportunity to buy – this is very hard to do but is always likely to be the best action to take. It was the infamous Warren Buffett who advised to be “Fearful when others are greedy and greedy when others are fearful”.
The below article from Fidelity gives some fantastic advice on how to navigate the downturn. It is probably what all of us already know to be true but find it hard to put into practice. And it all points towards one very obvious but tough course of action to follow – STAY CALM, DO NOTHING AND STICK TO YOUR INVESTMENT STRATEGY. If it was you plan to buy on a monthly, quarterly, bi-annual or annual basis then keep doing it. If it does not feel like the right time to do that then history tells us that it is probably the best time.
As ever, please do not hesitate to call, email or message in if you have any questions or queries or would simply like a bit of guidance.
6 Tips to Navigate Volatile Markets
When markets get choppy, it pays to have an investing plan and to stick to it.
1. Keep perspective: Downturns are normal and typically short
Past performance is no guarantee of future results.
- Market downturns may be unsettling, but history shows stocks have recovered and delivered long-term gains.
- Over the past 35 years, the stock market has fallen 14% on average from high to low each year, but still managed gains in 80% of calendar years.
2. Get a plan you can live with – through market ups and downs
Data source: Morningstar, Inc., 2019 (1929-2018)
- Your mix of stocks, bonds and short-term investments will determine your potential returns, but also the likely swings in your portfolio.
- Pick an investment mix that aligns with your goals, timeframe, and financial situation, and you can stick with despite market volatility
3. Focus on time in the market – not trying to time the market
Source: FMRCo, Asset Allocation Research Team, as of January 1, 2019.
- It can be tempting to try to sell out of stocks to avoid downturns, but it’s hard to time it right.
- If you sell and are still on the sidelines during a recovery, it can be difficult to catch up. Missing even a few of the best days in the market can significantly undermine your performance.
4. Invest consistently, even in bad times
Sources: Ibbotson, Factset, FMRCo, Asset Allocation Research Team as of January 1, 2019
- Some of the best times to buy stocks have been when things seemed the worst.
- Consistent investing can give you the discipline to buy stocks when they are at their cheapest.
- Consider setting a plan for automatic investments.
5. Get help to make the most of a down market
- While no one likes to lose money, your financial advisor may be able to help you take advantage of a down market.
- Tax rules may let you use losses on some of your investments to reduce your future tax bills, or use lower share prices to convert to a Roth IRA at a lower tax cost.
- Down markets may also be a good time to meet with your advisor to discuss adjusting your investment mix, or taking advantage of opportunities when prices are low.
6. Consider a hands-off approach
- If you are not comfortable with market risk, consider turning your portfolio over to a professional through a managed account or all-in-1 mutual fund.
- If you don’t have a strategy, or think yours may be off track, start planning now by scheduling an appointment with Adrian Cartwright today.
