With the wild ride we are having this year in the markets, many want to know if now is a good time to invest? It’s a lot like a rollercoaster ride. Ever notice how some riders are gripping the safety bar with terror in their eyes, while others are screaming and laughing? Well, this market is like that rollercoaster ride depending on who you are. Keep in mind, that investing is more than the closing Dow Jones number each day, and financial planning is far more inclusive than just investing. But let’s focus on the investment question. Think back to the 2000 and 2008 downturns. Most of us wish that we would have plowed more money into the markets during those downturns. It’s always darkest before the storm. Let’s set some parameters and address whether it’s a good time to invest.
We are conditioned to focus solely on that daily closing number of the Dow Jones Industrial Average (DJIA). This one benchmark seems to suck all the air out of the room. We also closely watch the S&P 500 and the Nasdaq. All three, plus several others (Russell 2000, anyone?) comprise what we generally, and very loosely refer to as the markets. The markets are our benchmarks, or indicators, as to how we think the economy is doing, or more accurately, where it is heading.
First, let’s consider the big enchilada that gets all the attention - the DJIA. This benchmark is the most widely reported and most heralded in the news. But keep in mind that the DJIA is a price-weighted index which tracks 30 large, publicly-owned companies trading on the New York Stock Exchange (NYSE) and the Nasdaq. That’s it; only 30 large companies out of tens of thousands of companies. Another point to keep in mind is that stocks in large companies are likely only a portion of your total financial portfolio. For many, our portfolio is made up of cash, real estate, stocks (of various company sizes), and likely a fixed income component such as bonds, bond funds, TIPS, or other instruments such as municipal bonds. My point? Your portfolio is not just the DJIA. That said, the DJIA is pretty much in correction territory being down about 10% from its most recent high.
Next, think about your own personal situation. Where are you in your investment journey? Are you still accumulating? Are you near or ready to retire? Or, are you in retirement? Are you using a taxable brokerage account to save for a near-term goal? We are all at a different point on the spectrum. Think about where you are on the spectrum before deciding which action to take.
If you are still accumulating or are working and not yet retired, now is likely a very good time to add more money to your investments. You can think of this year as a big sale. My husband is retiring this year and we both have decided to add to our investments. Down years, or correction years are good times to add to long-term investments and maybe to rebalance for some. You may have some tax losses you can use to offset other gains. Keep that in mind.
If you are at or near retirement, you need to pay more attention to the market because you may need to make some more immediate corrections. For example, you may wish to reduce your monthly drawdown from your investments if you are in retirement. Or, if you are eligible and at or past the Social Security full retirement age, it might be worth starting to collect your benefit. Either of these actions will take pressure off of your investments and allow them time to recover and grow. You would be surprised at how backing down from say a 4% drawdown to a 3.5% or 3% drawdown can relieve pressure on your portfolio and give it time to grow.
We are in a rough and tumble market no doubt; technically, a correction. Inflation, war, the Fed, midterms… are all adding to the uncertainty. Remember, we’ve been here before: 1987, 2000, 2008, 2018. You got past all of those down years and you will get past this year. Try to keep some perspective though and avoid focusing on the day-to-day closing. Rely more on your long-term plan. Add money to your investments if you can and it fits your long-term goal. If possible, cut spending and reduce debt during this time in favor of investing. Most importantly, know what your plan is! You should be working with a financial planner to establish a long-term investment plan matched to your risk tolerance and your goals. Don’t just wing it. So yes, now is likely a good time to invest if you are following your plan, know why you are investing, and have a goal in place.
If you are visual person, or a numbers person, either one, check out MacroTrends.net. You can find a 100-year historical chart and see that we have many more up years over time than down years. If only our ancestors had invested a $1,000 at the end of 1932. Yep, 1932, not 1930 as one would expect!
As an independent CERTIFIED FINANCIAL PLANNER™, I can help you plan for time like these. Contact me and let’s get started on a savings, investing, or retirement plan. #talktometuesday #education #Hireaplanner #stressfree #IRA #Roth #401k #savings #retirement #CFPPro #whatsMYnumber #investment #DJIA