Did you panic in the recent market pullback? Did you sell in December, then put money back into the market in January and February? That’s selling low and buying high, which is not a strategy for investment success.
The stock market has been on a wild ride over the past few months. Mid-December brought a heart-stopping drop of almost 16%, making me think perhaps I should have been a little more cautious about my Christmas spending. The Dow fell 350 points or more six times in seven days. Then January and February brought a strong rally, indicating that perhaps all is right, or at least a little better, with the financial world.
What caused all this volatility? Primarily the fear of the unknown: how would trade tariffs, slowing global growth, a government shutdown, bouncing oil prices and the actions of the Federal Reserve impact the economy? As time passed and the economy did not run off the rails, the stock market popped back up.
The important question is how did you feel while all this was happening? Did you sell stocks in December when you saw valuations fall? Did you start putting money back in the market in January and February during the recovery? Many investors did, which meant they were selling low and buying high, which is exactly the reverse of what you should be doing.
Now is a good time to double-check how your money is invested. If your mix of stocks, bonds and cash is right for your goals and your risk tolerance, then when the market has a big pullback (as it always will—stocks don’t go up in a straight line forever), you can look for good opportunities to add to your equity holdings. But if you were panicking in December when the market went into free fall, then you need to dial down your equity risk.
Sit down with your financial advisor to discuss whether your allocation of stocks, bonds and cash is right for you.