The current uncertainties contributing to the market's ups and downs have probably been there in one form or another as people have been living in groups. As many people have long noted, social media and the Internet brings us everything, and social media and the Internet brings everything with an unprecedented immediacy. This contributes to the general feeling that the world is falling apart.
The world has been falling apart for many millennia. All the world’s religions seek to bring order and reason to a chaotic world. And all the world’s religions date back millennia.
Several years ago, a financial planning speaker brought this home with the following example. The speaker went back and looked at the headlines and lead stories in a national newspaper on the day he was born and on each of his birthdays (50+). As he flashed the headlines on the screen, it was very clear that there were all kinds of reasons to stay out of the market because the sky was always about to fall. Nonetheless, we managed to get through it all.
I was reminded of that story again this morning as I looked at the Sunday newspaper which featured a major story on the D-Day landings, June 6, 1944. Several years ago, I visited Normandy and the cemetery on the hill. It was very moving for this ex-Navy guy for several reasons beyond just the men and woman who fought and died there. First, the whole operation, including the movement of 5.000 ships and hundreds of thousands of troops from several nations in one night and through the following days, just boggles the mind - especially as the operation was done in an age without computers. Second, it was important to understand that the whole landing was gambled on a call on a break in the then very stormy weather that the Allies projected was coming, but of which the German defenders had no knowledge. Finally, as anyone who has seen Saving Private Ryan will know, it was the individual heroics repeated on the widest scale that when summed up, made the victory possible.
Now that was uncertainty!
We probably have a stormy market ahead. The yield curve (graph of the yield on US Government securities versus time) has partially inverted (short term rates higher than long term rates rather than the other way around) which is generally (but not always) a predictor of recession. The President and his food fights with various countries over trade will all probably come to a good end, but such fights are very messy to experience. Congressional action on almost everything has been frozen by a very small but highly vocal minority which seems to feel that the President should be fired when his term has less than 20 months or so to go.
Talk about uncertainty!
From an investment standpoint, it would certainly seem to make sense to take everything to cash and wait for the sun to come out.
The problem with that strategy is that it has never worked. A diversified portfolio of equities and fixed income is still the best bet for the long term. Even in down markets, the reinvestment of dividends and interest in lower-priced securities leads to greater long-term returns over time.
Now that tax season is over for most people, try doing two things:
Look at your 2018 tax returns and reassess your withholding (too little or too much) so that you can make changes to your W-2 or RMD (Required Minimum Distribution) withholding accordingly for 2019 so you are not caught again particularly if the tax returns went against you in 2018.
Do a personal financial balance sheet: list your assets at market value and subtract all liabilities to get your net worth. Each year after doing taxes, update this net worth statement. When thinking about financial activities during the year think in terms of taking actions that will tend to increase your net worth by increasing assets and/or paying down liabilities faster.
You should be thinking long term. If you worry about the day to day or week to week actions of the market you are not thinking long term.
Warren Buffett continues to opine that betting against the United States is a sucker’s bet. That does not mean that you will not be dealt a bad hand of cards from time to time. It says that you stay in the game as those bad times come and go.
I asked Riley, our Golden Retriever, what she thought about the current market situation. She got up and went to the back door indicating that she wanted to go out. I opened the door for her, and she went to her spot to do her “business”. That done, she came back in, sipped some water from her water dish, and lay back down. Interesting comment Riley – just go about your business and ignore everything else. Come to think about it, sometimes Riley must go outside in the rain, but she goes out and just ignores the rain. She just keeps moving forward…even when it is raining.