The last few weeks have been quite a stock market roller coaster, taking investors on a wild ride of accelerated twists and turns. Price volatility is scary, especially if you are not prepared to ride things out.
We could have guessed this October wouldn’t be smooth sailing with continuing problems in the Middle East and Eastern Europe.
Pain points
The Ebola virus has been percolating since this summer. Did anyone really think Europe was roaring back? Now even the US could be sputtering.
The US unemployment numbers are better. However, beneath the surface, the number of people officially in the labor force is no higher than the late 1970s.
Additionally, many people question the quality of the jobs currently being created. Clearly it’s a large part of the reason Washington is fighting so hard for a major increase in the minimum wage.
So what ultimately tips the scales and causes a big drop in the stock markets?
Occasionally it will be a downside earnings surprise from a major corporation or a “Black Swan” event. Other times sluggish global growth starts a negative chain reaction that slams markets.
America’s new energy independence is a tectonic shift from just ten years ago. The current oversupply of oil is great for SUV drivers and perhaps even good for Walmart (WMT) as people have more money to spend.
On the other hand, the energy sector is a major driver of job growth.
Preserving cash
For cash needs, consider moving out of the stock market and into money markets.
That’s called a “sleep at night trade.”
Anyway, rather than just run for the sidelines, we suggest you remember some time tested advice, review your current investment style, and strategize. Use this market move as a wakeup call to review, reassess, and come up with a plan.
A goals-based strategy, with specific dollar amounts targeted, and then funded can be effective. Use cash first for near-term goals and use highly liquid investments for medium to longer term goals.
According to S&P, the recovery period, from a garden variety bear market, (down 20-40%), has averaged just 14 months. That same bear market averaged 11 months in duration, so in total, that’s two years’ worth of waiting.
Fine for a long term investor. But that’s not so great, if you have a tuition payment to make next December.
Consider retirement funding versus education funding. Many people will walk over broken glass to keep their kids debt free for college, but don’t forget your kids can borrow money for their education, and then have a lifetime to pay it back.
We haven’t met anyone willing to fund our retirement on those terms.
Continue Learning: As share buybacks wane investors feel the pain
DISCLAIMER: The investments discussed are held in client accounts as of September 31, 2014. These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable. Past performance is no guarantee of future results.
