Even Dan Aykroyd and Steve Martin’s “wild and crazy” Festrunk brothers would probably be stunned by some of the bizarre things going on in the world today. In case you missed them, here are some headlines that were so unbelievable they could easily be mistaken for the plots of next year’s blockbuster movies:
Unfortunately, that level of craziness has extended into the market news as well. These days, data that used to provide some level of clarity now seems to just add confusion. Job growth is up…but the stock market is down. The US economy is recovering…but China’s flailing economy has our markets reeling. The Fed finally raised interest rates…but mortgage rates aren’t following suit. The market is soaring one day…and plunging the next. Oil prices are down…but the impact on energy stocks and local economies in areas like North Dakota and Texas are putting a dent in consumer confidence.
All of this gives the media a lot to banter about. But in reality, no one really knows what’s going to happen tomorrow or in the next 18 months. Instead of wasting your energy listening to the media circus, here are my recommendations for maintaining your sanity—and your savings—through what’s sure to be a wild ride:
1. Take solace in cycles.
The market is cyclical. And yet many investors have great difficulty removing emotion when it comes to expected and anticipated downswings. While things are by no means “normal” lately, one thing that hasn’t changed—even since 2008—is that the market consistently goes up over time. Keeping this in mind can help keep your emotions at bay and your portfolio on track. (For more on emotions and investing, see my September 2015 blog Apples, lemmings, and why you should just stay put .)
2. Keep calm.
While the market is on a tumultuous ride, keep in mind where we are compared to 2008. As of today, the market is down 6% for the year. While that’s not good news, it’s a far cry from a bear market decline of 20%. Even if the market does drop further, pulling out of the market is precisely the irrational behavior that compounds the problem. Keep your eye on the long game, stay away from the media hype, and know that a good strategy is built to sustain volatility. If you still need help breathing, read t his .
3. Don’t speculate.
If you know any day traders, they’ve probably lost a bundle in the last few weeks. Why? Their job is to speculate on short-term opportunities. Even in the best of times, a cheap stock isn’t necessarily a good buy. And when the market is as unpredictable as it is today, speculation can be a losing game—big time.
4. Take advantage of good opportunities.
Of course, as Warren Buffett says, "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price." In a down market, there will inevitably be opportunities to buy stock in wonderful companies at fair (or better!) prices. On that note, here’s another favorite Warren Buffet quote to keep in mind: "Be fearful when others are greedy. Be greedy when others are fearful."
5. Consider cutting back.
If you are overly concerned about the state of your portfolio, perhaps the best thing to do is strive to live on a little less for the time being. I’m suggesting delaying large spending projects until next year or when the market gets through this phase of the cycle. And when the market recovers, you’ll have that much more in your pocket to enjoy on a rainy day.
The most important thing to do in times like this is stay away from any major changes—in your life and in your investing approach. None of us can control global events or their impact on the stock market. What we can control is how we handle that impact at an individual level to maintain a solid, thoughtful strategy moving forward. At Guerin Financial, our job is to help you build a portfolio that’s aligned with your tolerance for risk and can generate adequate returns in a variety of market conditions in the years ahead. No matter how crazy things may seem, remember that we’re keeping our eye on the market precisely so you don’t have to.