What Goes Up Must Come Down…Or Not
By Mary Grace Musuneggi
I am thinking this is a good time to revisit our October newsletter. Volatile markets should remind us to stop and remember.” –Mary Grace Musuneggi
Back in June 2008, I remember fielding calls from clients who were pretty sure they would spend their retirement years living under the Smithfield Street Bridge. As 2008 and early 2009 brought financial markets to their knees, we felt their pain. In lighthearted moments we would laughingly say maybe we needed to change the name on the door of the office from The Musuneggi Financial Group to The Musuneggi Dog Walking Gang. But the fact is it was more important for us to hold on to the belief that “this too shall pass”–and it did.
We are currently at the historic highs of the stock market…and we have bond rates that are at historic lows. Double Whammy! And although there is no crystal ball, and past history cannot predict future history, I do believe that history can lend some perspective.
In a recent article by Brenden Gebben, Portfolio Manager for Absolute Capital, he refers to the Ned Davis Research that says that during Bull Markets, on average, the stock market has historically sustained upward trends for 331 market days before a 10% correction occurs and upward for 1105 market days before 20% correction occurs. So from this view we are certainly due for a correction.
And what if we are? What are some things we need to do? What are some things we need to remember?
1. Avoid trading too frequently.
2. Stop. Don’t panic. Trust your strategies. Trust your money managers’ strategies; after all, that’s what you’re paying for.
3. Don’t get out of the market at the worst times.
4. Be sure you are diversified. There are other market segments beyond just domestic stocks and government bonds. Be sure you understand them all.
5. Rebalance sometimes. Often. Frequently. Or whenever it is appropriate for your risk tolerance and for your objectives.
6. Don’t ignore tax ramifications. Return on investment is not the same as after-tax return on investment.
7. Consider taking profits. When markets go down the most common theme we hear from our clients is that they have “lost” what they had previously earned. If you transfer profits to cash along the way, you keep those earnings to either spend or to reinvest in the markets when they go down. Buying opportunities.
8. And remember, in 1921 the Dow Jones was at 60 and recently it was at 17000. Obviously it has gone up. But to get there it has gone up and down and up and down and up and down along the way. Time can certainly be more important than timing.
No matter what the markets are doing, your investment decisions need to be those that are right for you. At the right time. In the right allocation. To review your current strategy give us a call.