The conventional wisdom for investors with a long-term horizon is to hold steady when current news rocks the stock market.
And that advice still held true these past two weeks despite the roller-coaster ride for equities as the markets responded to President Trump’s ever-evolving efforts to address trade imbalances with China.
Experts say that if your investment strategy doesn’t need an update, stay the course and ignore the fluctuations.
History has shown over time that the stock market, despite its ups and downs, still outperforms other investments such as bonds and real estate.
Yet it’s hard for people near retirement or those who have already retired to overcome their fear that we’re headed for another major downturn.
Now toss in the unpredictability of Trump, who doesn’t follow normal policy protocol. He likes to govern through his Twitter account, and people are understandably nervous in letting their money ride in equities. That’s the case with New York resident Bill Pizzo and his wife.
“During rocky times, like the 2008 meltdown, it is my job to keep us calm and focused,” Pizzo wrote. “I produce all the articles cautioning against jumping in and out of the market. I check our asset location to make sure it’s still appropriately balanced for our age and situation, and I make sure we haven’t run out of bourbon for the Old Fashioneds we will need for fortification.”
But then 2018 happened, Pizzo said.
“I tried the old reliable formula to calm our jitters, but my wife said something that I couldn’t explain away with historical data,” he wrote. “She said, “Yeah but this is uncharted territory. Trump cannot be trusted to make the right decisions. He relishes the chaos he creates. His temper tantrum tweets cause stocks to crater one day then rebound the next. We are too close to retirement. I couldn’t just say, ‘Don’t worry, it’s gonna be okay’ because I didn’t believe it myself. I didn’t do anything though, and was grateful when the market rebounded this year and we recovered nicely.”
The couple said it’s Trump’s unpredictability, not the volatility of the stock market, that has led them to change their investment strategy.
“We are almost 60 years old, and while I plan to work until age 65/67 my wife will retire at 63. So, I tweaked our allocations to 50 percent equities and 50 percent bonds/cash. My wife wanted to just cash out and dollar cost average back in but I ‘convinced’ her that while our timeline has gotten shorter it is still long enough away that we should not do anything that drastic and that we will be locking in some nice gains by simply rebalancing. Our newly defensive portfolio has held up pretty well, but my wife is not comforted by my observation that ‘we lost much less than if we didn’t rebalance.’ She says, “We should have cashed out’ as she mopes away.”
Last week, I asked readers to share their feelings about the stock market and what, if any, investment strategy they had, as well as if it has changed with the recent turbulence on Wall Street.
“When Trump was elected, my investment strategy immediately changed," wrote Andy from Vaughn, Wash. "I moved a significant part of my investments to cash. I am within 10 years of retirement and cannot afford a (downward) roller coaster, either financially or gastronomically. Disruption does not fit my investment strategy, so I am mostly out of the market. I like to invest in companies and funds I understand and believe in. But when there is little stability, seemingly no rules, as under Trump’s administration, my money and security are not stable.”
Many other readers said they are also pulling back from the stock market but not because they are unhappy with Trump’s approach to China.
Glenn Castiglione of Columbus, Ohio, wrote, “I’m a 64-year-old disabled retiree. Most of my life I have generally adhered to a risk strategy of moderately aggressive and stay the course. I have been traditionally on a risk scale of 4 out of 5. This generally means 65 percent in equities and 35 percent in fixed income. [Last week], I switched to a number 2 level of risk, which in my case equates to 65 percent in fixed income and 35 percent in equities. With the China trade deal, North Korea, Iran, Venezuela, Israel versus Gaza it will only take one significant event to cause a major market correction.”
Glenn Castiglione of Columbus, Ohio wrote, “I’m a 64-year-old disabled retiree. Most of my life I have generally adhered to a risk strategy of moderately aggressive and stay the course. I have been traditionally on a risk scale of 4 out of 5. This generally means 65 percent in equities and 35 percent in fixed income. [Last week], I switched to a number 2 level of risk, which in my case equates to 65 percent in fixed income and 35 percent in equities. With the China trade deal, North Korea, Iran, Venezuela, Israel versus Gaza it will only take one significant event to cause a major market correction.”
Other investors said that they are staying the course.
“My investment strategy basically stays about the same month after month,” wrote Dennis Quillen from Hattiesburg, Miss. “I invest almost exclusively in low-cost stock index mutual funds and use a modified version of dollar cost averaging. I have a high-risk tolerance, so I don’t worry too much about market trends or feel the need to have much at all in the way of bond holdings.”
Chuck Anderson of Chesapeake, Va., wrote, “My wife and I have a very simple investment strategy. We are retired. We always keep ten years’ worth of living expenses in cash in a money market account. The rest is in stocks — individual, index funds and mutual funds. This way if markets go down we don’t care, we know we will have enough to live on, and hopefully within 10 years they rebound. We also have Social Security and small defined pensions that do not adjust for inflation. When we worked we dollar cost averaged as much as we could and except for a few years always maxed out our 403(b) and 457 accounts.”
It’s hard to remove your emotions from investing, but when deciding on the best investment strategy for you — and your nerves — consider at least one important factor: inflation.
If you live 20, 30 or even 40 years after retiring from working, the money you’ve invested has to grow so that you can keep pace with the costs of goods and services.
“My goal is to ignore the noise from the ‘experts’ on Wall Street and just build a diversified portfolio that is appropriate for my age/goals, that is tax efficient and has the lowest fees possible,” wrote Will Austin from Seattle.
Chuck Yanus of Crossville, Tenn. wrote, “As a retiree I feel that the stock market will allow my wife and I to continue to enjoy our retirement years with the best returns, and the ups and downs of the market affect me less now mentally than when I was younger and still working.”
Color of Money Question of the Week
Let’s continue the conversation. What’s your greatest fear about investing? Send your comments to firstname.lastname@example.org. Please include your name, city and state. In the subject line, put “Stock market.”
Live Chat Canceled
This week’s live online discussion is canceled. But join me next week, when I’ll be discussing the Color of Money Book Club selection for May. My guest will be Jeni Rogers, author of “200+ Ways to Protect Your Privacy.” Rogers will join me to answer security questions.
Here’s the review of the book: Here’s how to develop a criminal mind to protect your personal data.
If you missed the chat last week, here’s the transcript.
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