The strength of the US consumer, coupled with historically low interest rates, is continuing to keep the US equity market indexes near all-time highs. If the information the Federal Reserve Board looks at shows the economy is slowing down, they stand ready to lower rates to keep the current economic expansion going. Employment numbers in the US continue to show that businesses are hiring and growing, but without the type of wage growth or wage inflation that would be a concern.
From an investor standpoint, there has been a good amount of complacency. We see that when the stock market is going up, it is hard to get clients scheduled in for reviews. Complacency can quickly change to fear or greed as volatility picks up. As advisors, we see certain things on our side of the desk that investors don’t see. We may see our clients emotionally want to add to their accounts after a good monthly or quarterly statement or, even more common, want to reduce stock holdings after a bad month. Emotion can, and most likely will, have you doing the wrong thing at particularly the wrong time.
This year’s returns for stock investors have been good; risk has been rewarded thus far in 2019. Year-to-date performance numbers are exciting, but it is important to remember how last November and December made you feel. The difficult ending or drop in the markets last year may have added to the positive returns we have experienced this year. Keeping a long-term perspective and looking at how accounts have performed over many years can help keep our emotions in check and set better long-term expectations.
We’ve got a lot going on in the economy, politics and in the business world over the next 18 months. If we keep a realistic view of what we expect form our investments, we may not be disappointed. Here are some action items to consider:
- If your stocks have grown out of proportion to your bonds and the mix you want, it may be time to rebalance.
- If you have a need for money in the next 12 months, consider raising a portion of that now by selling some of your investments that have done very well.
- If you are over-concentrated in a particular stock or fund and you don’t understand how it could impact you, ask questions of someone who can answer them and make a plan.
At Marzano Capital Group, we are optimistically cautious about how the markets will perform through the election of 2020. Markets like certainty and we do not have a lot of that in the near future. It’s time to be realistic about what we expect and what we need from our investments, especially during times like we are getting ready to enter.
Now is a great time to review what you have to better understand where your risk is and how you may be impacted by market swings in either direction. Be prepared and have a plan!