If you are thinking everything is looking up because you've seen similar headlines, PLEASE keep reading
I don't care if you don't know much about the stock market, just look at these numbers for a second: The S&P opened this year at 2683, and closed on May 3rd at 2635. You don’t have to understand everything about finances to know that 2635 is less than 2683. But this week, we’ve had the biggest gains in the S&P 500 since March and multiple news outlets are reporting we've turned a corner.
If you are thinking everything is looking up because you've seen similar headlines, PLEASE keep reading.
THERE ARE HUGE THINGS GOING ON IN THE POLITICAL WORLD, that no one can predict and BECAUSE OF a couple of GOOD DAYS strung together the MARKET is going to start "DOING BETTER?"
One of the things that are most frustrating to me about the financial world is how reactionary financial experts are. One event happens and headlines everywhere read “The world as we know it has changed!”
So, last week, as the S&P and DOW grew again, there were tons of news outlets, like Market Watch, publishing articles saying “The US Stock Market Seems To Have Turned The Corner.”
Remember: NAFTA is up for negotiation at the end of this month and there is a potential tariff war with China, how can we really say everything is looking up?
Don’t Buy The ClickBait - Plan For Market Volatility
Let me make one thing clear: I have no idea what’s going to happen in the future. It’s very possible we’ll have an amazing rest of the year. That would be great!
But I’m not going to make sweeping statements based on the performance of one week and neither should you.
These newspapers and pundits may make it sound like the volatility that we had earlier this year is gone, but there’s no way to know that. In fact, with so many global events are coming up in the next few weeks that making claims like Market Watch and other networks have is completely uncalled for.
It’s more likely that this big, exaggerated talk is less motivated by confidence in market performance and more by how many clicks or sales they’re make for these eye-catching headlines.
If nothing else, the growth we’ve had should motivate you to reevaluate your current investment plan.
You Don't Know What The Future Holds
You may be asking yourself, “What does it matter if these websites and media outlets want to make a few extra bucks on sales?”
It may seem harmless, but based on news like this, many people make disastrous decisions.
In fact, I recently had a couple call me that I've been working with for years.
They were near retirement and had been somewhat cautiously invested in the past. But after listening to all the great news they’ve heard from other financial experts, they wanted to invest more aggressively.
These hyperbolic headlines instilled a false sense of security for my clients.
I understand the temptation to buy more stocks when they market is doing well. People are always afraid of missing out on potential gains, but regardless of how the market is performing, you should never be making financial decisions based on predictions about the future. If any advisors or planner tells you change your strategy based on the future, you need to run in the other direction.
Luckily, I was able to remind my clients that they had a solid investment strategy already and they were still benefiting from this growth without risking their retirement.
You Need To Base Your Investment Strategy On More Than Predictions
If you can’t base your investment strategy on predictions, what should you base your strategy on?
It depends on where you are in your journey to retirement.
You need to know what level of risk your retirement plan can handle and you need to know what level of risk you can handle.
Don’t understand the difference?
Here are a couple of examples.
The clients that I mentioned earlier were near retirement and wanted to invest aggressively. They felt that they could handle the risks involved with losing 30% of their income, but when we did the math, we found out they would be in a lot of trouble in the near future if there was a drop in the market. Instead of investing more, despite the returns they could have had, we pulled back and made sure they were getting more income from safer investment products.
On the other hand, I had a client who was much younger. She had the time and money to invest aggressively. It wasn’t going to hurt her plans for retirement since she was so far away. But she was very honest with me that she could not, personally, handle even a 15% drop in her assets. She’d be anxious about her money and it would ruin her day to day peace of mind. That wasn’t worth the potential money she’d earn, so we were able to compromise and find a level of risk she could live with.
The bottom line is, no one knows what the future holds. Not even the greatest financial experts in the world can tell you what will happen next.
Weak Plans React To Week Headlines
Instead of trying to predict what the market will do based on one good or bad week, create an investment strategy based on a level of risk you and your retirement plan can handle. If you don’t know how to find that middle ground, you can sign up for a free consultation.
We’ll work together find the best way for you to invest without stressing over headlines. Our team would love to create a strong plan for you and your family that can handle volatility in the market.