InvestingDaily.com

Account Information

  • My Account

    Manage all your subscriptions, update your address, email preferences and change your password.

  • Help Center

    Get answers to common service questions, ask the analyst or contact our customer service department.

  • My Stock Talk Profile

    Update your stock talk name and/or picture.



Close
FEATURED STRATEGY

This Two-Minute Market Move Could Make You Rich

This Two-Minute Market Move Could Make You Rich[Revealed] How to generate instant income from the stock market. Over and over again. At will. This technique is so powerful – and safe – we’re guaranteeing you can use it to generate $1 million (or more) in retirement cash. And we’ll even send you a $1,000 check to kickstart your journey. Go here for details.

 

Stick With Your Plan

By Robert Rapier on February 6, 2018

Over the weekend I had a discussion with some friends on Facebook about the Dow’s sharp sell-off over the past few sessions. Some people were panicking, and some were asking “What’s the big deal?”

One friend put it all in perspective when he wrote: “I simply do as I’ve always done… stay the course.”

That’s an important perspective that I will address in more detail below. But let’s first discuss what’s going on in the market.

A Broad-Based Selloff

The sharp sell-off that began last Friday has been extraordinarily broad-based. Google Finance shows the last 20 quotes I accessed, which covers most of my portfolio and several companies I track. Of the 20, only the CBOE Volatility Index (INDEXCBOE: VIX) was up (+28.51%) on Friday. The other 19 quotes, which span just about every sector, were all in the red. 

Some of my friends shrugged off the drop. After all, investors have experienced one of the longest bull markets in history, and the occasional drop should be expected. Over the past five years, there have been a couple of 10% corrections, but both were short-lived. Yet such a long period of low volatility is unusual.

So is this a brief correction, or the start of something like 2008, when the major indices fell by 40%?

Fear Creeping Into the Market

Analysts have offered several explanations for why the market dropped. One is simply that overextended markets undergo corrections. Wage growth is stoking fears about interest rates, as my colleague, John Persinos explains. As John points out, the VIX measures fear in the stock market, and that fear is rising. 

But why is fear rising? Let me add one more perspective to the mix.

First, oil prices have risen sharply in recent months. Rising oil prices often precede market corrections.

Second, we are in the midst of a political crisis underway that could be headed toward a constitutional crisis. During the Watergate crisis in the early 1970s, the entire world experienced one of the worst bear markets in history.

Of course, in addition to the political crisis, there was an oil crisis going on as the Watergate scandal unfolded. The net impact was that from 1973 to the end of 1974 the Dow Jones Industrial Average lost over 45% of its value.

Stay the Course

We don’t know what’s going to happen next, but my friend had it right. You have to stay the course. Your course, which may not align with someone’s else’s course. 

If you have a long time horizon, don’t fret too much about market volatility. In 2008, I watched my portfolio get nearly cut in half. But I had a long time horizon, and I felt like my investments were good long-term picks. My portfolio recovered, and then it soared during the bull market. This year the investments I held during the financial crisis reached four times the value they had during the financial crisis.

But if my time horizon had been shorter, my plan would have been different. You need time to recover from a 50% loss, and as you move toward retirement, your time horizon declines. You need to shift from riskier stocks to lower risk investments. 

If you need the income during retirement, you need to shift into income-generating assets. Choices may include:

  • Real estate investment trusts (REITs), which my colleague Scott Chan recently discussed 
  • Master limited partnerships (MLPs)
  • High-quality bonds
  • Blue chip stocks
  • Conservative mutual funds

But the critical thing to remember is that it’s YOUR plan. You must execute it based on your circumstances, and all financial advice you receive should take that into consideration. Those circumstances will be primarily dictated by your time horizon and risk tolerance. Don’t risk money you won’t have time to recover.

Conclusion

Investors don’t like uncertainty, especially late in a bull market. When people start losing faith in institutions, investors get nervous, and you start to see a lot of volatility. 

So, should you worry about last week’s sell-off? It depends. If your portfolio is weighted heavily toward growth stocks, but your time horizon is starting to get short, then yes. This sell-off should serve as a reminder that 30-40% corrections do happen, and unless you have time to recover from such a correction, you should probably start to ratchet down the risk in your portfolio.

Even if your time horizon is a bit longer, this is probably a good time to reassess your goals and adjust your portfolio as needed. 


You might also enjoy…

 

Forget Buy and Hold. Here’s how to retire faster…

I’m not a fan of “buy and hold.” Gurus like to tell you that patience is the key, but I call horse puckey.

We’ve discovered an investing technique that consistently pays out easy-to-repeat profits.

One that’s proven to beat the market 2,082% in head-to-head testing.

And one that’s generated over 488 winners since 2011.

This method is so powerful, in fact, some of the investors we’ve let use it reported back to us saying they’ve made $71,425… $82,371… and even as much as $151,000 in a single year thanks to this “trick.”

That’s how powerful this investing technique is!

What what exactly is this mysterious method? I’ve put all the details together here.

Stock Talk — Post a comment Comment Guidelines

Our Stock Talk section is reserved for productive dialogue pertaining to the content and portfolio recommendations of this service. We reserve the right to remove any comments we feel do not benefit other readers. If you have a general investment comment not related to this article, please post to our Stock Talk page. If you have a personal question about your subscription or need technical help, please contact our customer service team. And if you have any success stories to share with our analysts, they’re always happy to hear them. Note that we may use your kind words in our promotional materials. Thank you.

You must be logged in to post to Stock Talk OR create an account.

Create a new Investing Daily account

  • - OR -

* Investing Daily will use any information you provide in a manner consistent with our Privacy Policy. Your email address is used for account verification and will remain private.