It’s no secret that last week was a wild one in the stock market. And as I sit and write this on Sunday evening, I’m going to assume that we will continue the wild ride into Monday.
I am sure that many participants are wondering how this effects their 401k plans and how long this will continue.
But let’s remember., that the 2%+ drop on Friday started by one tweet.
Which also means that one tweet can send it in another direction as well.
See diary, the markets hate uncertainty. And we are about fourteen months away from another presidential election. That will definitely create uncertainty. But this volatility seems a little early. Especially in our 24 hour news cycle and everyone having access to news and data in their pocket.
So diary, we get volatility! Which can be scary. Especially since the “swings” seem to be large and change rapidly.
As you know diary, I have been in this business since 1997, how do I remind everyone it’s imperative to take a breath and review “why” you are investing in the first place.
If the “why” is a long term goal (10 years or more) than everyone should breathe a little easier.
But if they will need to spend all of their money before 10 years, and their portfolios are participating in these wild swings, they may need to review their current strategy.
See diary, there are really only two strategies to deal with volatility. Create a “Strategic” allocation by diversifying and “not putting all of your eggs in one basket”. The other way is to create a “tactical” allocation and decide when (and how much) money you want exposed to the markets.
Or a combination of both.
But as we both know, the tactical allocations work best with prolonged market ups or downs. Volatility like what we have seen recently, especially when caused by a tweet, makes it hard to tactically allocate a portfolio.
And diary, it makes it frustrating because we never know when the next tweet is coming or what it will say!
(And speaking of tweets, be sure to follow us on Twitter, Facebook and Linkedin).
So diary, I am hoping that we can get back to fundamentals this week. As it’s the last “unofficial” week of summer and everyone should be back to work after Labor Day!