By Gary Silverman, CFP®
Last week I looked at where we were when it came to the stock and bond markets. In a way it was the end of a series of articles appearing across the year that discussed specific problems we’ve run into like inflation, Ukraine, the bond market debacle, and the downward slide of the stock markets. Most of June I discussed whether folks should cut their losses and run. Today will be a summary of all this.
When the stock market hit its high at the start of the year, no one knew it. Only by looking back could you see where the peak was. In the same way, when we are at the bottom of the current bear market, we will not know it. Only when looking back upon it will it be obvious.
The stimulus put in and taken out of the markets due to Covid (or lingering from the Financial Crisis) caused our current inflationary woes. So did the war in Ukraine. So does the shift in our energy mix. So does weather patterns. All of this also affected the stock and bond markets. While the reasons matter, they don’t matter for what you should do about a down market. Markets go down at various times for various reasons. You might correctly guess the reasons for the next market decline. It is unlikely you will guess the timing of it; and when it comes to your wealth the timing is everything.
Getting out of the market (stock, bond, real estate, or commodity) before it goes down and back in before it goes up is the holy grail of investing. Everyone wants it, no one finds it. But that doesn’t stop them from trying. I warn about this regularly.
During the bull market, getting into hot sectors (I’m looking at you, Technology) was a great move until it wasn’t. During this bear market due to energy realignment and Ukraine getting into hot sectors (I’m looking at you, Energy) has been a great move—and will continue to be so until it isn’t. These things are called cycles and they are cyclical. Figure out how to time the moves and you’ll make a lot of money. When this doesn’t work, please go back and reread my warnings about timing things.
My recommendation has been and continues to be to build a resilient portfolio that can ride through the ups and downs of the markets and the ups and downs of the sectors. If you can’t stand the ups and downs, mix things into your portfolio to make it less bouncy. If you can’t stand any bounce, don’t go into that market or sector no matter how good you think it looks.
And if you find yourself in a position that you shouldn’t be in, then after said market/sector recovers build a portfolio you can live with next time this happens—because it will happen again, and again.
Wishing y’all a great second half of the year.