 | January of 2016 was one of the worst starts of the year since records were kept. If you turn on CNBC on a bad market day, it seems like the world is coming to an end. The fact is that S&P500 was down 5.2% for the month with NASDAQ and Russell small cap stock indexes giving away more than 9% each. |
What does this really mean for you?
Well… that really depends on your investment time horizon. If you are a trader with a short term trading outlook then you should be cautious and honestly you should have sold your portfolio long before this blog was written.
But if you are a long term investor, looking to build and grow your wealth over time, this is no time to be scared. This is the time when you step away from the day to day market moves & news and focus on the long term picture of the financial markets. That being said, let me help you with that by sharing with you this chart …
But if you are a long term investor, looking to build and grow your wealth over time, this is no time to be scared. This is the time when you step away from the day to day market moves & news and focus on the long term picture of the financial markets. That being said, let me help you with that by sharing with you this chart …
S&P500 ETF (SPY) 02/01/1993 – 01/31/2016 (Monthly Chart)
What you see above is 23 years invested in the S&P500. If you invested roughly $50,000 on the first day of this chart, you would be currently sitting on a nest egg of roughly $194,000 or almost 4 times your money (not taking into account any dividends, additional contributions etc.) .
Easy Money Theory
Looking at that chart above, some would say “that is easy money” or “too good to be true”. Well, I don’t know about the latter but I know first-hand it’s not easy money. I know this because I know that in order to get that return, the investor would have had to hold on to the urge of selling away in at least 2 major bear market (2000 internet bubble & 2008 financial crisis) and that cannot be easy by any definition of the term. It would also interest you to know that in that same time period of 23 years we have had 9 negative Januarys out which 2 (2008 & 2009) were much worse that January of 2016.
Don’t Try to Act Smart
I am sure that after looking at the chart above, many of us thought...
“if I had only sold my portfolio at the top of those 2 peaks and then bought it back at their respective bottoms, I could have made a hell of a lot more money than what he’s taking about”
Well, my friend, unless you are a professional day trader or money manager, you should not try doing that at home. To illustrate that point, allow me to show you the same chart in another light ….
“if I had only sold my portfolio at the top of those 2 peaks and then bought it back at their respective bottoms, I could have made a hell of a lot more money than what he’s taking about”
Well, my friend, unless you are a professional day trader or money manager, you should not try doing that at home. To illustrate that point, allow me to show you the same chart in another light ….
In that same 23 year time period, you would have been wrong 14 times and right only 2. That is much worse odds than betting on red and black on the roulette table.
On a serious note, the reason you should not try to time the market is simply because there are many healthy corrections in a market and those corrections can put your money out of play for the market rally that can start at any time without any logical reason whatsoever.
On a serious note, the reason you should not try to time the market is simply because there are many healthy corrections in a market and those corrections can put your money out of play for the market rally that can start at any time without any logical reason whatsoever.
So what should you really be doing?
In my opinion, the only thing you should be focusing on as a long term investor, is your portfolio allocation. There is no right generic answer to what your allocation should be. Your investment portfolio allocation should be based according to you. It should take into account multiple factors like your age, your time horizon, your current assets, your income, your family structure and most importantly, your emotional ability to take risk.
Use this time of market correction to revisit your current allocation structure and plan to make changes as opportunities arise in the markets. Talk to your financial advisor about your portfolio allocations and your financial plans. If you don’t currently have an advisor feel free to give me or any of my team members a call to discuss your situation in detail. We would be happy to help you any time.
Hope this piece helps clears the confusion and nervousness caused by current markets. And please always remember that media outlets will have no viewers if they don’t dramatize market events.
Use this time of market correction to revisit your current allocation structure and plan to make changes as opportunities arise in the markets. Talk to your financial advisor about your portfolio allocations and your financial plans. If you don’t currently have an advisor feel free to give me or any of my team members a call to discuss your situation in detail. We would be happy to help you any time.
Hope this piece helps clears the confusion and nervousness caused by current markets. And please always remember that media outlets will have no viewers if they don’t dramatize market events.
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