2019 has been a great year for U.S. financial markets but there's an underlying sense that investors are beginning to do a gut check over recent and rising risks in the economy, political landscape, and financial markets. Everyone's wondering, "What's next for stocks and bonds?" The last few months of 2019 have reminded us that markets can still be rewarding. But in late-2018, we were all worried about the ugly volatility and wild swings markets were experiencing. The bottom line is that markets are acting like markets and, regardless of current conditions, you should have an investment strategy that gives you confidence for the long-run.
We've certainly seen our economy slow in 2019 and, as investors, we need to prepare for what's to come, good or bad, so that emotions don't dictate our investment strategies and lead us to make poor decisions like buying high and selling low. In fact, studies backup this phenomenon verifying that the bad decisions investors make are often driven by emotions. So how can you invest your money with confidence while leaving nervous emotions on the shelf? Here are five tips:
- Look at current market conditions. Right now, our economy seems to be stable so normal investment strategies tend to work in this environment. Consumers have been confident this year, but there are signs this may beginning to wane a bit despite the fact our unemployement rate is at a 50-year low! The long-term bull market trend has not been broken and the question remains, what could break it? There are a few possibilities, but the catalyst for change remains to be seen. The rest of the globe has also slowed and the Federal Reserve is taking action to add fuel to our own engine in hopes the slowdown won't hit us as hard here in the U.S. If you're a long-term investor, you shouldn't be concerned about what's on the horizon in the short-run.
- Consider risks in the market today. As I write this today (mid-December), the service sector is slowing and the downward trend is concerning. The pace of new job creation has been trending downward for much of 2019 but better-than-expected results over the past two months have helped slow the decline. Consumer spending and the housing market have been strong in recent months but uncertainty surrounding impeachment proceedings and the trade war with China have led to market volatility. A continued economic slowdown remains the most likely case based on the data.
- Think about overweighting sectors that are expected to do well over the next 12-36 months and underweighting areas that may underperform. When you think about all the major places you can allocate money, it’s important to diversify without diversifying to mediocrity. Consider where money is flowing and which sectors have the best prospects for growth.
- Don’t underestimate the role an investment advisor can play in keeping you on-track. Whether you are too busy to do it yourself or you just need someone to help you take a more tactical approach, a qualified advisor can help you avoid making mistakes. If all you do is open your monthly statements and look at whether the value went up or down, you probably need to pay a bit more attention. On the contrary, if your current advisor doesn’t proactively communicate with you, you may need to consider someone who will. You work hard for every penny and you need to know that someone is working hard for you.
- Know how much investment risk you should be taking. Since we as human beings are 2.5 times more concerned with avoiding losses than we are with achieving potential gains, it's important that our investments reflect our attitude about investment risk. Instead of battling against this human nature, what if we could keep a tight check on the reigns instead? Click here to take a simple risk assessment to pinpoint how much risk you're comfortable with so you can make sure your investments are in-line with your emotions. Since everyone is different, this assessment will assign you a personalized "risk number" and give you a better idea of what might be a normal performance range for an investment portfolio that's in-line with your risk number. This may help you set expectations of what you might experience in the future if you choose to adjust your risk level accordingly.
If you are interested in talking more about an investment strategy for 2020, reach out to me! I would love to discuss what strategies may work best for you.
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