Japan’s Crisis Shouldn’t Affect Your Investing Strategy
What is an investor to do now, in the face of a potential nuclear meltdown?
The news is flooded with doom-and-gloom scenarios coming out of the crisis in Japan. The devastation and loss of life are tragic and our prayers go out to everyone affected in the region. As a member of the financial community, this type of situation typically means that people begin frantically asking for our predictions and theories about how it will affect the economy. Unfortunately, it’s impossible to predict what will happen. Just like it was impossible to predict what was going to happen the day prior to the bottoming out of the S&P 500 two years ago. In order to understand the complete lack of predictability we are faced with, let’s take a look back over the past two years.
We recently reached the two-year mark since the market low of March 9, 2009 when the S&P 500 hit a low of about 676. To put this low into perspective, one should note that investors have to look back to 1996 to find a time when the market last registered that index level.
[See top-rated funds by category ranked by U.S. News Score.]
As I wrote about in a previous blog post, the S&P 500 has nearly doubled in two years. Small caps have performed even better off the bottom, which is not unusual and has been the topic of several blogs I wrote at Off The Wall. Over the same period of time that the S&P 500 has nearly doubled, the Russell 2000 index, a good index for tracking the performance of small-cap stocks, has rebounded nearly 140 percent.
In spite of this incredible recovery, when you look back at the news from March 2009, there were a lot more people declaring there was more downside to come in the market, that deflation was probable, and that we were sure to see a continued recession, than there were declaring that the market was about to recover—especially to the extent that it has.
My point is: One can never predict what will happen in the market, and the last two years is a perfect example of this. However, there are things investors can do in uncertain times.
So what is an investor to do now, in the face of a potential nuclear meltdown?
[For more investing and money advice, visit U.S. News Money, or find us on Facebook or Twitter.]
Stay disciplined.
It’s that simple.
Since few people have the guts to go “all in” during a time of crisis and when the market has sold off, the best bet is to never put yourself in a position where you actually have the ability to go “all in” in the first place. Betting everything you have right now implies that you’ve sold and have cash on hand.
[See Is Your 401(k) Riskier Than You Think?]
If you have a 50-50 chance of being right when you sell and then a 50-50 chance of being right when you get back in, that’s a 25 percent chance of being right on both trades. Those are bad odds.
So what should you do if the reactor experiences a meltdown? Some may say follow your gut. Others may say follow the consensus. Few may even say to do exactly the opposite of the consensus.
I think that’s all bad advice. I think the best thing to do is to follow your financial plan and its associated investment strategy.
So, what should you do about Japan? Stick to your plan.
David B. Armstrong , CFA, is a managing director and cofounder of Monument Wealth Management in Alexandria, Va., a full-service wealth management firm. Monument Wealth Management is backed by LPL Financial, the independent broker-dealer and Registered Investment Advisor. David has been named one of America’s Top 100 Financial Advisors for two straight years by Registered Rep Magazine (2009 and 2010 based on assets under management) and has been interviewed by several national media sources over the past several years. David and Monument Wealth Management can be followed on their blog Off The Wall, their Twitter accounts @MonumentWealth and @DavidBArmstrong, and on their Facebook page. Securities and financial planning offered through LPL Financial, Member FINRA/SIPC.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendation for individual. To determine which investment is appropriate please consult your financial advisor prior to investing. All performance references are historical and are not a guarantee of future results. Asset allocation does not ensure a profit or protect against a loss.
Stocks of small companies involve greater risk than securities of larger, more established companies, as they may have limited product lines, markets and/or financial resources and may be exposed to more erratic and abrupt market movements.The Russell 2000 Index measures the performance of the 2,000 smallest companies in the U.S. stocks, serving as a benchmark for small cap stocks and mutual funds. The weighted average market capitalization for companies in the Russell 2000 is about $1 billion.
Read the article on U.S. News & World Report here! >>
IMPORTANT DISCLOSURE INFORMATION
Please remember that past performance is no guarantee of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Monument Capital Management, LLC [“Monument”]), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Monument. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. No amount of prior experience or success should be construed that a certain level of results or satisfaction will be achieved if Monument is engaged, or continues to be engaged, to provide investment advisory services. Monument is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice.
A copy of Monument’s current written disclosure Brochure discussing our advisory services and fees is available for review upon request or at www.monumentwealthmanagement.com/disclosures. Please Note: Monument does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Monument’s website or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.
Historical performance results for investment indices, benchmarks, and/or categories have been provided for general informational/comparison purposes only, and generally do not reflect the deduction of transaction and/or custodial charges, the deduction of an investment management fee, nor the impact of taxes, the incurrence of which would have the effect of decreasing historical performance results. It should not be assumed that your Monument account holdings correspond directly to any comparative indices or categories. Please Also Note: (1) performance results do not reflect the impact of taxes; (2) comparative benchmarks/indices may be more or less volatile than your Monument accounts; and, (3) a description of each comparative benchmark/index is available upon request.
Please Remember: If you are a Monument client, please contact Monument, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. Unless, and until, you notify us, in writing, to the contrary, we shall continue to provide services as we do currently. Please Also Remember to advise us if you have not been receiving account statements (at least quarterly) from the account custodian.