Last week, I turned on the TV and I saw nothing but fear-mongering about a potential market crash.
Then…
This week the news reports that the S&P 500 is 2% from an all-time high.
WTF!
How can a news report change that fast?
And…
What is an investor supposed to do with this conflicting information?
Always Be Ready for Volatility
The truth is…
Nobody really knows what the market is going to do. We have to make long term plans and stick with a system. When we use a systematic approach, we can invest consistently over time. And profit from the 12% average returns of the S&P 500.
If you don’t have a system, you end up reacting to financial news. And that’s a surefire way to lose money.
Never Trust The News
A few weeks ago, I heard the President say the market would crash if sleepy Joe won the election. And here we are one week after the election with the S&P 500 at an all-time high.
Was this a political power play designed to make the new administration look good?
Or…
Was it a coincidence that the Coronavirus vaccine results were published after the election? Thereby, boosting the stock market…
We may never know. And it doesn’t really matter. There will be political power plays, as long as bureaucratic systems exist. What matters is the long-term trajectory of the economy. And for the past 90 years, the S&P 500 has been moving upwards.
Financial news doesn’t talk about long term trends because it’s not exciting. And long term trends don’t drive trades.
And that’s all you need to know.
The news is not interested in the long term performance of the stock market. They are interested in ratings. So, we have to build our long term plan based on historical data. Not the fancy, whiz-bang analysis CNBC wants to parade on live TV.
Check Your Asset Allocation
Your asset allocation is the key to successfully riding out volatility. You should have the appropriate amount of safer, lower-risk investments to meet your risk tolerance.
If you want me to break it down kindergarten style…
Add enough Bonds, Cash, Gold and Real Estate to help you sleep well at night.
And add as much as you want. The key is to stick to a fixed percentage of safer assets. Because if the market crashes, buying safe assets won’t do you any good. You’re locking in losses. And the goal is to buy low and sell high.
Hang On For The Long Term
Once you’ve determined your asset allocation, you’re in good shape. Now you need to hang on for the ride.
The volatility of the stock market is great for long term investors because we get to scoop up deals. So, don’t hold on to your gold too tightly. Stay alert for opportunities to get a few more shares of the S&P 500.
You Got This!
If you ignore the news and stick to your long term plan, volatility will not be a problem for you. As a matter of fact, you’ll look forward to the volatility. It’s just another opportunity to make money.
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