Did Last Week's Action in the Stock Market Test Your Nerves?
Last week's stock market action brought a strong rally after a steep decline reverse itself into another steep decline. Did action test your nerves? Did you leap for joy when the market shot up, supposedly on news that the trade war with China had been eased? How did you feel when the initial 500+ point gains slowly but steadily deflated by market close? And what about the plunge that ended our week? Was that a swift kick in the gut?
The point here: If you found yourself emotionally dragged first this way, then that, you may want to revisit your asset allocation. If last week's volatility gave you the heebie-jeebies, it could be that your current allocation just isn't right for you.
This isn't about some objective analysis of your allocation, based on your investment goals, historic and anticipated returns, etc. If a thorough analysis concludes that you've got the right allocation, but you're in a state of semi-panic, what good is the analysis? Emotion will likely cause you to make a bone-headed decision at some point in the future (if you haven't already done so). And don't think for a minute that the volatility we're seeing is a thing of the past. You'll derive nothing more than temporary comfort from such thoughts. Such comfort will set you up for an even greater shock when the next round begins.
Now, if you think you can stick with an allocation that for all intents and purposes really suits your investment goals, good luck. You'll likely need it.
On the other hand, if you were disturbed and disoriented by these recent wild swings, give that allocation some second thoughts.
A simple way to stay calm in stormy seas is holding cash - either a big slug of it, or even all in. And - guess what? - you can actually get a return on cash these days. Take a gander at treasury rates and you'll see that you can get an annualized return of 2.30% just rolling 30-day bills. Compare to years of 0% return on short-term treasuries. Not bad. And there's no risk to principal. Oh, and there's no credit risk either.
The key here is to be honest with yourself. These swings will continue and at some point will likely take us into an honest to goodness bear market in stocks where most "buy-and-hold" portfolios will give up tens of percent in value. In 2008-2009, most stocks portfolios lost almost 50%.
So thank your lucky stars that we're seeing things unravel now, before the real you-know-what hits the fan. You're emotions are being tested. Acknowledge them. Then make your prudent measured decisions now, before things get worse and you wind up losing more than you can possibly bear.
And remember that the reason why most individual investors don't do all that well in the stock market is that they buy when everyone's feeling good and buying and sell when everyone's panicking and selling.
Not a good idea.
The point here: If you found yourself emotionally dragged first this way, then that, you may want to revisit your asset allocation. If last week's volatility gave you the heebie-jeebies, it could be that your current allocation just isn't right for you.
This isn't about some objective analysis of your allocation, based on your investment goals, historic and anticipated returns, etc. If a thorough analysis concludes that you've got the right allocation, but you're in a state of semi-panic, what good is the analysis? Emotion will likely cause you to make a bone-headed decision at some point in the future (if you haven't already done so). And don't think for a minute that the volatility we're seeing is a thing of the past. You'll derive nothing more than temporary comfort from such thoughts. Such comfort will set you up for an even greater shock when the next round begins.
Now, if you think you can stick with an allocation that for all intents and purposes really suits your investment goals, good luck. You'll likely need it.
On the other hand, if you were disturbed and disoriented by these recent wild swings, give that allocation some second thoughts.
A simple way to stay calm in stormy seas is holding cash - either a big slug of it, or even all in. And - guess what? - you can actually get a return on cash these days. Take a gander at treasury rates and you'll see that you can get an annualized return of 2.30% just rolling 30-day bills. Compare to years of 0% return on short-term treasuries. Not bad. And there's no risk to principal. Oh, and there's no credit risk either.
The key here is to be honest with yourself. These swings will continue and at some point will likely take us into an honest to goodness bear market in stocks where most "buy-and-hold" portfolios will give up tens of percent in value. In 2008-2009, most stocks portfolios lost almost 50%.
So thank your lucky stars that we're seeing things unravel now, before the real you-know-what hits the fan. You're emotions are being tested. Acknowledge them. Then make your prudent measured decisions now, before things get worse and you wind up losing more than you can possibly bear.
And remember that the reason why most individual investors don't do all that well in the stock market is that they buy when everyone's feeling good and buying and sell when everyone's panicking and selling.
Not a good idea.
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