By Dennis & Christopher Fagan
With the stock market at or near record highs as measured by the Dow Jones Industrial Average as well as the Standard & Poor’s 500, we thought it would be a good time to post some thoughts that are currently running through our collective minds.
Since the bottom of the bear market on March 9, 2009, the stock market has more than tripled from the bottom. With this in mind, think back and try to remember what you were feeling at that time. Were you sticking with your investment plan or did you bail out of stocks? Did and do you have an investment plan in order to respond appropriately to market movements or did you respond emotionally, out of fear or greed? If the answer is the latter, take some time to develop a plan of action to help you reach your financial goals.
Fast forward to today. Are you still spending more time researching the best $35 toaster oven to purchase rather than how and with whom to invest your life savings? Once again, if the answer is the former, take some time and get familiar with the investment world. Buy some books. Read the daily, weekly and monthly periodicals. You don’t need to become an expert. You just need to become familiar with the industry do’s and don’ts, many of which we have published over the past several years in our columns.
Investment in moderation
You don’t need to be a hero. Investments should be made in moderation. It is boring, but history will once again prove that it works. Don’t invest more than a small portion of your money in speculative securities and always ask yourself, “What if this doesn’t work out—what happens to my account?” Too often, investors see only the upside to a purchase and not the downside. There are two sides to a trade and, believe it or not, investments don’t always go up in value. Prepare for negative as well as positive outcomes.
Do you realize that when interest rates rise, as they most surely will do over the next few years, the value of bonds decline in value? The reason is simple. Who would pay full value for a 10-year U.S. Treasury note currently yielding approximately 1.50% if in a year from now those same notes are paying 3.00%? Nobody.
More people will run out of the theatre if somebody yells “fire in the lobby” rather than “popcorn in the lobby.” Be careful you don’t listen to all of the doomsayers out there and remember our advice above—everything in moderation. If you think the markets are going to pull back a bit, raise 10 to 20 percent cash. If you are bullish, put some of that cash to work. However, very rarely is it wise to go “all in” or, for that matter, all to cash.
Many investors have too much information and not enough knowledge. Too many investors have their fingers on the proverbial trigger (computer keys in this case) who should not even own guns. Perhaps it is better to let someone else handle your portfolio.
Some direct-to-consumer investment companies outsource their customer service to distant lands. That may work as the market climbs. However, when the market pulls back, as it surely will, you will want to be able to meet with your advisor in person, pick their brains and make certain that your financial plan will withstand the turmoil. Get to know your investment advisor.
Historically, the stock market begins its climb during the latter part of a presidential election year (June 2016) and tops out for a while during the first month of the third quarter of the post-presidential election year (July 2017). Are you ready for it? Do you have a plan just in case things play out this way? If so, congratulations. If not, get to it.
Please note that all data is for general information purposes only and not meant as specific recommendations. The opinions of the authors are not a recommendation to buy or sell the stock, bond market or any security contained therein. Securities contain risks, and fluctuations in principal will occur. Research any investment thoroughly prior to committing money or consult with your financial advisor. Note that Fagan Associates, Inc. or related persons buy or sell for itself securities also recommended to clients. Consult with your financial advisor prior to making any changes to your portfolio. To contact Fagan Associates, call 279.1044.