Dear Scott:
I’m too nervous to call Money Matters. I’m afraid I’d freeze up and not be able to ask my question. (And, besides, I’m not a client of Allworth Financial.) My question is, with this never-ending pandemic, and all this new inflation, and with the stock market setting records every other week, is this really a good time to buy stocks, or what?
~Rosario, 56
Your question made me smile, but I also know that calling a radio program can be intimidating. While I wish you would call, and you certainly don’t have to be a client to do that, I completely understand.
Now, be the stock market up, or be it down, you’re not the first person to ask this question. And, I admit, it’s always both a welcome and a relevant one.
Think of this: Whether “only” in a defined contribution plan such as a 401(k), 403(b), or 457, or in a traditional IRA, a Roth IRA, or a SEP, or with Allworth Financial, some other firm, or in a personal brokerage account, most of the people reading this – conscientious types who save – will continue to be active investors.
While decisions regarding just how you should be invested will be influenced by factors such as when you’ll need the money, your risk tolerance, and your health – or, for some people, those folks who are compensated by (and their portfolios heavily weighted toward) employer stock, in which case they may or may not want to divest and diversify – most people should stay the course and not jump in and out of the market.
As you’ve written to us, it would be my assumption that you are not currently working with an advisor. Without knowing anything more about you, except your age, and as you are 56-years old, and because retirement could be visited upon you at any time, I would strongly encourage you to have your personal financial situation appraised by a professional, fiduciary advisor.
At the very least, it should help put your mind at ease.
Essentially, you’re asking me when to “buy” and when to “sell” stocks.
And, in the most general sense, my answer would be, “Pretty much always.”
History has clearly shown that while markets do occasionally “correct” (which is normal and healthy, by the way), they have always risen over time. And that means that attempting to “time” the market to avoid the (historically) short-term pain of "paper losses" (remember, losses are only “realized” or “locked in” when you “sell” when the market is down) can ruin years of consistent, hard work and patience.
Now, to be certain, there is certainly nothing wrong with some financial introspection and oversight.
But while the ups and downs of the market can be worrisome, what I often explain to clients is that one of my most important jobs is to keep them from making mistakes from which they can’t recover. And that most definitely includes avoiding the emotion that too often influences our decisions surrounding investing and money.
Here are a few things to ponder that should add some context.
Left otherwise untouched, a mere $100 invested each month for 50 years at a 10 percent average rate of return builds to over $1.3 million dollars.1
And consider this: Most of the folks who stayed invested through and beyond the Great Recession, and stayed consistent through “all” those market ups and downs during 2008-2009? Most of those people were right side up by the middle of 2010.1
And, with that in mind, since 2010, the last 11 years haven’t been too shabby for investors, either.
Here’s a final example: If you stayed fully invested in the S&P 500 (which is comprised of the country's 500 largest companies) for the 20 previous years ending on January 1, 2020, you would have earned 6.06 percent per year. If, over that 20-year period, you missed only the 10 best performing days of the market, your returns would drop to about 2.44 percent, per year. 1
Taking it further, how about if you were to have “whiffed” on just the 20 best days of that 20-year period? (That’s 20 out of 7,300 days.) Your returns would fall to 0.08 percent, per year.
In closing, Rosario, if this hasn’t fully answered your question, I urge you to call-in to Money Matters (we’re here to help) or make an appointment with a fiduciary advisor and get your allocation reviewed.
After that, do your best not to worry about when the next market correction might or might not occur.
Thanks for writing, and please don’t hesitate to contact us if you have any other questions.