Should you be worried about the stock market right now?
Should you be concerned about the uncertainty regarding China or the Federal Reserve’s future moves?
You could be worried or concerned, but you don’t have to be. You should not worry, if you have taken the right steps to develop a proper and well diversified portfolio.
If you have a solid allocation of fixed income (meaning bonds, cash and CDs), then you should have adequate resources that will last you for many years, regardless of the ups and downs of the stock market. This is how we help to plan for our clients.
Having an appropriate allocation of fixed income securities in your portfolio should allow you to sleep well at night, regardless of the day-day volatility of the stock market. This should be your foundation,
which you can live off of for many years.
We do not think that the events of today, or the “crisis du jour,” should cause any major changes to a globally diversified portfolio that we have structured. There will always be events in the economy or world that can cause you to worry, if you allow them to. There is always the unknown of tomorrow. Our role is to help you cope with the events of the world, so you can adhere to your financial plan. This will lead to your financial success.
Warren Buffett was on CNBC earlier this week, as he announced Berkshire Hathaway’s purchase of an industrial manufacturer of airplane and oil & gas parts. When asked whether people should be looking to sell in the short-term, his response was classic Buffet.
Buffett’s response was something like this:
If you thought that your house would go down 5-10% in the next few months or year, or had already gone down, and you are worried about it, would you pack up your family, sell the house and move?
Think about Buffet’s analogy. Of course you would not sell your home based on short term worries. It would be difficult, time consuming and….the price may not even drop, as you thought may happen. And more importantly, the price of your home will very likely rebound and go even higher in the future.
It is much easier to worry about stock prices than it is to sell your house. There is constant analysis and opinions on which way the market will go and how you should react to each new tidbit of economic news
or earnings report.
We can’t stress enough the importance of having a very well diversified portfolio, ignoring the short-term “news” and for you to focus on the long-term.
If your portfolio is not well diversified….yes, you should be worried.
If you have major investments in individual stocks….yes, you should be worried.
If you are heavily invested in energy stocks…..yes, you should be worried.
If you need lots of cash in the short term, and that money is currently in stocks…..yes, you should be worried.
If you are a client of ours, you should not be worried.
If you are worried or want a second opinion about your investment portfolio, let’s talk about your concerns.