"I dont understand why the Market is acting the way it is"? We hear this question all the time. It's a perfectly natural question and if someone gives you an answer, just know that there is at least a 50/50 probability that they are either correct or incorrect. No one, not even the so called experts know with certainty why the market acts the way it does. Yes, we can arrive at rational conclusions some of the time. For example, once the markets figured out that there would not be an easy short-term fix to the coronavirus and that this would have a negative impact on the economy, stocks fell dramatically. After the Federal Reserve and government promised to provide an almost unlimited backstop of financial support to calm the bond and credit markets, the markets shook off the downside and rallied back to what is now, not far off from the old all-time highs.
On the other hand, we are faced with the highest unemployment numbers since the great depression, the additional unemployment benefits are set to run out at the end of July, we are seeing record missed rent and mortgage payments and a coronavirus that is creating havoc to people health and the economy in hot spots all over the USA with no concensus on how to safely re-open the economy. The market has high hopes for a coronavirus vaccine, but what if those hopes are significantly delayed or dashed altogether? How long can the government and the Federal Resever keep funding everything as record defecits shoot even higher? How long can cities, states, schools survive without their staple revenue sources. And what about inflation? How will this impact the dollar, the economy and our every day lives?
At this point we have raised enough questions to cause at least some mild, if not more acute levels of uncertainty. We really have no idea how many of the items we have mentioned will play out. No one does. It's a guessing game, a confidence game and so forth.
So, in reality, over the short term it is hard to escape uncertainty. And that uncertainty can mean having to constantly weigh decisions about your portfolio, your retirement, a stock or fund or bond. Most people are not well suited to manage uncertainty when it comes to making financial decisions in the short, mid or long term for themselves. How diversifed should you be, how often should you rebalance your portfolio, when should you cut your losses, when should you take gains? How much money do you need to retire? The list goes on.
So, how can you manage uncertainty? A fact based way to manage uncertainty is to look at the markets over a long period of time and objectively see how it has progressed and weathered the many crisis over that period of time. The trend over the last 150 years has been net positive. While this may not provide much solace when you find yourself caught in the middle of a crisis, whether that is an economic recession or a coronavirus induced economic crisis, it can provide some rational evidence based solace.
Another way to manage your investment portfolio and retirement, if you find it too stressful to manage it yourself, is to hire a competent investment advisor and let them concern themselves with the management of your portfolio and provide you with professional and rational investment advice. The fees charged which can range from 0.5 - 2.5%+ are well worth the 'peace of mind" and "expertise" you will gain by doing so. Interview several investment advisors, do your due diligence, take your time and find one that you like.
To Your Financial Well Being!