Recently, the Fed cut interest rates for the 3rd time this year; Fed Chairman Jerome Power explained the move was made to support the economy due to a greater uncertainty about the outlook. The market, one would think, would have rallied. Rates down equals “good” for investors, yes? Yes, but alas the market did not celebrate.
Speculators always say that a few rate cuts help the economy “weather” uncertainty. This time the uncertainty is due to the ongoing U.S. trade war with China. In fact, in an interview, Roberto Perli, a former Fed staff member and now an analyst at Cornerstone Macros, said “Overall, my expectation for now is that, unless things improve markedly, the Fed will probably skip November and not cut the rate again until December.”
What does all of this “uncertainty” talk really mean? When uncertainty heats up, we typically hear the terms recession and “bear market” quite a bit. A bear market occurs during a recession and a bull market during an expansion. Currently, we are over a year into the longest-running bull market in U.S. history. So, is now a good time to be invested? Is the market “overheated?”
This history of the Dow since the Great Depression shows how the stock market fluctuates and reflects natural stages of the business cycle. I always tell my clients — (feel glib), we are invested for the future, and we can’t run or make wise decisions based on the daily cycle.
Where We Are Today
Markets have rallied recently because of a better-than-expected jobs report, a strong labor market (despite the lengthy strike by General Motors workers that continued on into October), and better than expected earnings reports. The S&P 500 is up more than 20 percent for the year and could be headed for the best performance since 2013.
One could almost hear investors cheer as the U.S. and Chinese officials drew up a partial trade deal and more is forthcoming. This will happen because too much is at stake for both countries. But good news doesn’t always mean markets will rally that day, or that week. Frustrating, yes. It’s like working out and gaining weight—ever had that happen?
Chris Rupkey, chief financial economist at MUFG Union Bank recently wrote, “There’s no recession out there on the horizon. The stock market can rejoice and continue to climb to new record highs!”
Whether Rupkey is right or not (I think he is), a solid portfolio that you’re confident is being captained by managers you trust, is the only way to get where you want to go and, in a way, that you want to get there. Huh?
Two portfolios, side by side, both are up 20% year-to-date. Is one of the investors better off than the other? I say, “Yes.” The investor who had the least amount of volatility, stress, anxiety, worry, and fear from constant and unpredictable ups and downs of the value of their respective portfolios, is ahead.
For example, “John” earned 12% with major swings throughout the year, requiring multiple advisor meetings instigated by the large swings in his IRA value and a large intake of “Tums” to alleviate his heartburn from the stress of eating too quickly after listening to CNBC at night. You need to think shorting pot-bellies or investing only in the IPO (Initial public offering/when stocks go public for the first time) market.
Then there’s “Jane.” She also earned 12%, but while she read, re-read and translated Jonathan Livingston Seagull into 15 languages—ahem, very peacefully. Guess why. Yes, she had a plan and that plan involved a balanced portfolio intentionally designed for her, with her needs thoughtfully considered, and safety built in (like cash reserves for rainy days).
Tips on Trade and Market Talk
So, what do we make of all the noise from the media and what you read each day? The reality of a strong economy is exciting, yet the sound bites can be frustrating. It’s best to remember that noise moves the markets up and down, often. Those moves are fleeting; it’s the fundamental baby steps that you’re seeking in your portfolio’s returns. Some years you’ll get 20%, others 7%. Keep the following tips in mind:
• For most people who follow nighty reports of what happened on Wall Street during the day, the world of investing can be overwhelming, intimidating, and just scary. Let’s break this down; here’s a quote that we all need to practice daily. Benjamin Franklin said, “An investment in knowledge pays the best interest.” He was 100% correct. Read this piece that demystifies investing; It offers 4 steps, when, if taken, will result in long-term investment success.
When it comes to investing, nothing pays better dividends than a baseline education about this subject. The Liberated Investor, in 12 pages can offer just that. And it’s FREE. Find a trusted advisor, who has the ability to do for you what you cannot do yourself—show you how to understand the market and how to remain steady in good and bad times.
• When the market is down, don’t be shy about going against the trend of the economy and invest! Remember Franklin’s quote and invest in an industry you have researched. Don’t flinch if your investment goes lower before it turns up and starts to pay off. You are in this for the long run and not just a short gain.
• Learn how to invest wisely in yourself, your career, and those you love. These make up the core of your wealth. We have been given the ability to make money now so take this opportunity to do it wisely. It starts with a career and passion for what you are doing and also for your life—your core and how this connects with those you love. Take time to evaluate your talents—at any age! You will be surprised to learn that you can take your career and your drive and determination to a greater level at any age and turn these into wealth.
• “Know what you own and know why you own it.” – Peter Lynch. What Lynch is saying is once you do your homework, make your decision, then own that decision. Believe in it but also reevaluate your portfolio with your advisor on a timely basis. A wise decision made today may not look so wise on paper tomorrow. Because we are always looking at investments with the future in mind, you can always make wise adjustments.
• Finally, don’t overextend yourself financially. In over two decades of shepherding investors to greater wealth, I have unfortunately come across many who “overextended” themselves on many levels—not just financial. Some overextend themselves mentally and physically and when you do that, life loses its luster!
So, quiet the noise and invest your time and talent in the very things that offer the most return; invest in you, your relationships, and you make a difference in our world today.
Wrapping it all up
Do you find yourself stretched way too thin? Begin to climb out of that sinkhole by taking the right steps to financial and personal freedom. You can’t do this with CNBC in the background and without a trusted investment advisor. Commit to these two things, and do them today. With the economy as strong as it is, it’s a perfect time to start.