Even if you don’t watch CNBC, it’s hard to ignore the recent news about trade wars and how they might impact the US economy. If you kept up with the markets last week, by Wednesday, it looked like the US market was going to have a very bad week (spoiler alert—the S&P 500 and Dow Jones Industrial Average both ended Friday afternoon higher than they began Monday morning). Then there’s the big picture: we’re 10 years into what is typically a 7-year positive economic cycle. Is it all about to fall apart?!
Before you go sell everything and buy gold (please don’t), think of your practice: do you close shop when there’s an economic downturn? Of course not!
You should view your investment portfolio in a similar capacity to your practice, but for different reasons. The most important one is that there are no crystal balls. There is a reason everything investment related has a disclosure that says “past performance is not a guarantee of future results.” No one knows exactly when a recession is coming. If you liquidated your equities 3 years ago when that 7-year expansion period typically ended, you would have missed out on a 22.72% cumulative return from the S&P 500 between 1/12016 until 12/31/2018. As attractive as it seems, timing the market is almost impossible, even for professionals.
So what CAN you do to protect your investments?
First, make sure your portfolio is diversified between large cap, small cap, international, and fixed income in a way to meets your long-term objectives and risk tolerance. Think of an investment account with just large cap growth names like Amazon, Apple, and Alphabet (Google) like a bi-polar patient: when you average out their moods, they are fairly normal, but with really high highs and really low lows along the way. Diversifying among asset classes can help calm the mood swings and avoid a classic investment mistake: buy high sell low.
Next, implement a disciplined and systematic approach to that diversification by rebalancing your portfolio (or at least looking at your ranges to see if it makes sense to rebalance). I suggest this be done quarterly. When implemented in a consistent, unbiased manner this approach should result in a natural way to sell high buy low.
If you're uncertain if your portfolio is correctly allocated, not sure how to rebalance or have general investment questions or concerns, feel free to reach out to me to discuss HERE.