Last week I received a phone call from a client who wanted to discuss the current state of the stock market. He prefaced the conversation by saying he spoke to a friend who heard from his son, who took a course on investing, that the market is going down.
Amused, I started asking some questions and was told that he didn’t know why, but that they said in the course that the stock market will go down. Keep in mind I actually get calls like this often, and I responded as I usually do by asking, “Would you question your doctor, with over 20 years of experience, about her diagnosis by saying that your friend’s son, who has been in medical school for a week, said that she is wrong?”
No one knows whether the market will go up or down in the short term. I mentioned to the client that since the beginning of the year his account was about 5% higher, so I guess as of that point the friend’s son was wrong. Then I explained that the question is not whether the market will go up or down over the next six months but rather is this money needed over the short to intermediate term or is it money that can sit for the long term. If the money is needed in the next year or two, and it goes without saying for any time period shorter than that, then no risk should be taken.
This is actually an issue that comes up a lot regarding buying an apartment. I often get calls from individuals who are planning on buying an apartment in the next year, and they don’t want their money just sitting in the bank earning zero interest. They ask about investing the money. While I sympathize with them about their money doing nothing, the advice I give is to let the money sit in the bank. If this is all the money they have and it’s needed for a down payment, they can’t afford to lose any of the money and therefore they can’t take any risk.
As I have written previously, if you can’t afford to lose money, don’t invest. The way to make money is to take a slow and steady approach and realize that time is your friend. The longer the time horizon that you have, the better the chance that you can grow your money and accumulate a large nest egg.
Patience is vital in growing wealth. Investors get spoiled when markets rise over an extended period of time, forgetting that the market can drop as well. Last week I met with a young woman who started to complain that she had lost money over the last three months of 2018. I mentioned that markets were horrible and that it was the worst stock market performance for a December in 80 years.
I explained that markets can go down. She didn’t like that and continued on saying that no matter what, she should be making money. I reminded her that in 2017 she had a near 20% return, so the fact that for the last three months of the year she lost some money is no big deal. Her account is doing just fine.
Think long term
I may sound like a broken record but those who really keep their eye focused on the long term, end up doing well financially. Sit down and define your goals and needs, and then invest with an allocation that will help you achieve those goals. Don’t get caught up in trying to time the stock market, instead buy good quality assets and hold them. What you should do is forget about short-term market gyrations and focus more on reassessing your goals and needs from time to time. Oh, and don’t take advice from someone who has no clue about what they are talking about!
The information contained in this article reflects the opinion of the author and not necessarily the opinion of Portfolio Resources Group, Inc. or its affiliates.
Aaron Katsman is the author of Retirement GPS: How to Navigate Your Way to A Secure Financial Future with Global Investing. www.gpsinvestor.com; firstname.lastname@example.org.