The market is down about 10% from where it started at the beginning of this year. Everyone is worried. You may even be asking yourself if this is the time to get out of the market and cut your losses. It sounds great in theory but may cost you in the long run.
Even though many predictions for this year said that our current bull market would continue and double returns, we’re now facing consistent loses. New predictions show more drops over the next year and reports show that US consumer confidence is well before the norm. With all this craziness, I have clients coming in, concerned about their money and they have two main questions: Why is this happening and what should I do?
Why Is The Market Dropping?
Right now, our country is part of three different trade negotiations:
NAFTA - the North American Free Trade Agreement allows the United States, Canada, and Mexico to trade without tariffs and with other benefits to help the economies of all countries. NAFTA is up for renegotiation by the middle of the month.
Tariffs On China - if you keep up with the news, you’ve probably heard about this one. There’s been a lot of back and forth between us and China recently that could result in an all out trade war. While things are beginning to settle down, it’s unclear what the final agreement will be.
Tariffs on European Imports - there are currently plans to levy tariffs on European imports, including steel and aluminum. Most European countries have been given 30 days to negotiate a deal, but we won’t know the outcome until the 1st of June.
With all these unknown factors up in the air, all of which could have a significant effect on our economy for better or for worse, it’s not surprising that the market has been affected.
Everyone should expect an increase in volatility over the next few weeks as the results of these negotiations become more solidified.
For many people, it’s a stressful time to be invested, so they’re selling to save themselves the anxiety. But is the best move for you?
Don’t Get Out While You’re Ahead
One of the clients who came in to see me this week has been working with me for a long time and is a regular listener on my podcasts.
He has a large chunk of money in the market and is near retirement. He knew from my previous posts and segments that he was in a difficult spot. He’s losing money fast and it may hurt his retirement plans.
His plan was to take all of his money out of the market and put it into a Money Market account. (If you don’t know what a Money Market account is, it’s basically cash that sits in an account and may grow a small amount but nothing compared to the growth his investments were having before the drop.) The appeal of it for him is that he didn’t have to worry about losing money. Then, he could buy back into the market once things were more stable.
In his mind, this was the perfect plan. His money would be safe and he may even make a few extra dollars.
In reality, this was the worse thing he could do right now.
If you’re a regular reader or listener, like this client was, you may be confused. I’m always warning people to prepare for a market drop by investing more of their money in low-risk investment options. So, why am I encouraging you to stay in the market now?
Because market timing as an investment strategy DOES NOT WORK.
If you like to buy in when the market is doing well and sell out when it’s doing poorly, you’re participating in market timing. Essentially, this means you’re trying to predict what the market is going to do next, whether it will go up or down. But NO ONE knows what will happen in the future.
Instead, you’ll miss out on the amazing growth that will happen after this dip. You’ll buy back in too late and may even take a greater hit in the long term.
Get Off The Market Timing Treadmill And Start Growing Your Money
Instead of hopping on and off this market timing treadmill, buying and selling with no real plan other than your intuition, you should make a plan that can actually help you and your money.
Figure out now what level of risk your future can support.
Most planners will ask what level of risk can YOU support, but I want to know how much risk the plan you have for your future can handle.
If you’re near retirement, you may not be worried about risk, but the math says your plan can not support that risk, because you could be left without any money to live on.
Alternatively, you may think you can’t support any risk, but your plan needs some amount of risk and growth in order to work.
If you don’t have a plan or don’t know what your plan can handle, you need to figure that out before you make any decisions about your investments. Remember, it’s not about your present, it’s about your future, but your quality of life still comes first!
I told my client, that even if the market continues to drop for 2 or 3 more months, we still want to stay in because we can participate in the growth that will surely come after. I decided that his retirement plan could handle having 50% of his money in the market with the rest in more low-risk options.
He still struggled with this as he was already on edge after the money he lost in the last two weeks. He shared that even though his plan could handle that change, he would be too scared and anxious to live comfortably with so much of his money on the line.
We were able to work together and decided that his plan AND his mental health could handle about 40% of his money being in the market.
With that level of risk, he could lose that money and his future would still be okay. But in the meantime, his assets would grow and he’d be able to use that money later on in his retirement.
Don’t let yourself become a victim of a market timing investment plan. Instead, figure out what level of risk your plans for the future can handle and what level of risk you can handle.
Once you have an answer to these questions, you never have to think about your money again.
You know that no matter what the headlines say, you can handle the changes coming your way. If you don’t have a future plan or don’t know what level of risk it can support, make sure you sign up for a free consultation. We’ll help you get off the market timing treadmill and set a plan for the long-term.