Predicting the bottom of the market and recognizing the opportunities it holds.
Investment opportunities in a down market
In times of uncertainty, it makes sense to want to pause investing and instead keep your money in a ‘safer’ place, like a savings account. But investors must overcome this impulse. The fact is, you must be willing to tolerate some uncertainty � and indeed risk � in your plan if you want to out earn the inflation rate. Over time, higher-risk assets, namely stocks, have returned substantially more than guaranteed and low-risk assets, and it�s reasonable to assume that pattern will hold in the future too.
Predicting the bottom.
With the coronavirus pandemic causing a volatile stock market, many investors are wondering when is the best time to buy more stocks. It is impossible to predict the bottom of the market. As Berkshire Hathaway CEO Warren Buffett reiterated recently, �you can�t predict the market by reading the daily newspaper.�
While we all do our part to ‘flatten the curve’, it is important, if possible, to still consistently invest for retirement and other financial goals. The strategy of investing a fixed dollar amount on a regular basis, regardless of what is occurring in the financial markets, is called dollar cost averaging. This strategy removes the difficult task of trying to ‘time the market’. If the market keeps sinking, remember that, for many investors, this is okay – you are investing your money for the long term, not for this week or even this year. Unless you�re near retirement, you will likely have time to recover.
Future gains are never guaranteed but the stock market reflects the economy which will eventually recover from the effects of the coronavirus. History shows that if you can ride out market lows, stocks should gain in value over time. For most investors, the total time you are invested in the market, rather than the day you got in the market, will have the bigger effect on your potential investment growth. The longer you are invested, the longer your money can compound in value and the longer you have to rebound from any downturns.
We don’t know how long this volatility will last. No one does. It is important, however, to stay disciplined in order to maintain your long term goals.
The importance of diversification
If you truly have a diversified portfolio, some of your holdings should be doing better with this recent market downturn. If everything in your portfolio goes up and down in lockstep, you probably aren�t as diversified as you think.
Consider investments less correlated to the markets like private investments, REITs and cash value insurance products.
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Written by Susan Walker (Stonebrooke Private Wealth Management) – reproduced with permission
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