Today could be one of the best performing days in the stock market or it could be one of its worst days. To quote Warren Buffett’s comments on Oct. 16, 2008, “I haven’t the faintest idea as to whether stocks will be higher or lower in a month-or a year-from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment of the economy turns up.”
No one can say for certain what will happen at any given time in the market. If you’re an investor, you know — all too well — how volatile and unpredictable the market is. The market melt-downs take a toll on all of us. But how does this affect your portfolio, and what steps, if any, can you take to deal with it?
Our 3-year-old granddaughter Averie woke up the second day we were visiting her last weekend and announced that she “didn’t want to throw a fit today.” The first day had been filled with excitement, expectations and anticipation. This of course led to sensory overload and was dealt with by throwing a few “fits.” On the second day we had a plan, which included naps for Averie, Papa and YaYa. We outlined our goals and objectives to prevent aimless drifting. Averie wanted to go to the aquarium, soccer practice, swimming and out for ice cream all at once but we broke it down instead. You may want to retire, travel and fund the kids’ education, but not all of that will happen in one day.
BACK TO BASICS
Structure and adherence to a process generally produce better outcomes. Formulate a long-range approach and build framework for your goals. Then evaluate and regularly monitor the plan to weather shifting external factors. If a change is justified based on your risk tolerance or future goals, it’s time to discuss potential alternatives and make any adjustments to your plan.
Here are a few facts and opinions to consider:
- Some individual stocks will blow up or decline dramatically sometimes without warning.
- Everyone wants to be in the best performing asset class every year.
- Market leadership is unpredictable.
Would you rather be guessing and chasing performance of have a plan in place? Without a plan you may be tempted to move money into the next “hot” asset class. The problem here is that once an area is recognized as “hot,” you may have already missed some of the best performance. Even if you get it right, you still never know how long it will last.
We are in the midst of an economic cleansing process. Unemployment and business shut-downs are impacting human welfare. In order to help we collectively get up off the ground certain policies and procedures are being implemented. Risks and returns will shift to a “new normal” and there will be adaptations and changes to be made. Inflation, deflation, stagflation, who knows?
The economy is participating in the equivalent of an experimental drug trial. Yes, there is a case for taking the medicine, but there is also much uncertainty about the side effects, lags and effectiveness. Will everyone respond the same way, or will there be atypical reactions amidst public and private sectors?
The circuit breaker did its job and we are now rebooting the system. Growth has slowed because consumer demand is down for housing and other “stuff.” Mopping up the mess left behind from excessive credit will take time to play out.
The good news is that there are certain factors within our control. Just like taking a nap, having a sound forward looking plan and a process to provide diversification is a reasonable place to build your foundation.
In closing, I quote from Bob Dylan’s song “Forever Young”:
May your hands always be busy...
May your feet always be swift...
May you have a strong foundation...
when the winds of change shift...
Darcie Guerin, Financial Advisor & Branch Manager, Raymond James & Associates, Inc. located at 606 Bald Eagle Drive, Suite 401, Marco Island, and FL 34145 provides this article. If you have questions please contact Darcie Guerin via e-mail at Darcie.Guerin@RaymondJames.com. Phone (239) 389-1041, toll free (866)-343-0882 or at RaymondJames.com/Darcie. Past performance may not be indicative of future results.