“Bubble”, “Correction”, “Overvalued” etc. are now the cool words splashing around on TV and newspapers. Of course, none of these pundits saw the 35% decline coming earlier this year, nor the subsequent 40% recovery. Yet, somehow, they want us to believe that a repeat of 1999 is in the offing. The truth is that no one knows where the market is headed, not even Fed.
With tons of inexperienced traders drawn into platforms like Robinhood, trying to make a living trading stocks with little to no knowledge of the companies they are buying or selling, stocks like Tesla have reached astronomical highlights with no fundamentals to stand on.
The harsh reality is that worldwide confirmed coronavirus infections exceeded 15 million this week, with more than 4 million of them in America—double that of six weeks ago. U.S. jobless claims rose last week for the first time since March, the latest sign that a post-lockdown recovery is slowing as Covid-19 spreads. Initial claims rose 109,000 to 1.42 million this week. The actual number of people collecting jobless benefits is reportedly a staggering 30 million.
Future Wealth’s View
Our advice, at Futurewealth, to our clients and investors, in general, is really three cardinal rules:
Have enough cash to sustain your life and not be dependent on the returns from the market. If the money in the market is the money you need to pay monthly bills, go conservative and stay away from watching the stock market everyday. If you do not need the money invested in the next 5-10 years, stay away from watching the stock market everyday anyway.
Establish a risk threshold and be comfortable with it. Being in the market means taking a risk that your portfolio will drop at some point. Whether it is 0%, 5%, 15% or 30% drop that represents your threshold is a decision you have to make. The fact is that the S&P 500 has delivered ~10% return annually on average from 1926 to 2018. There have been years when it was down over 30% and several years when it was up over 30%.
Don’t make investment decisions based on the noise from TV or media. Each of the commentators, pundits, reporters etc. has a selfish motive to pontificate on why his or her recommendation is most important and unique and that somehow, bewilderingly, the rest of the public just does not have that level of insight.
Enough said. Be safe.