A volatile stock market can be a scary thing. It seems so uncontrollable and swings up and down with news reports, new inventions and trends, unemployment numbers, politician’s statements, it seems almost anything really can affect the market. This constant change can lead to a lot of investor uncertainty and make one look for a way to control or game the market.
The current recession and novel coronavirus pandemic started with a major plummet of the global stock market in February and early March 2020 which was the worst since the 2008 financial crisis, and has since swung up and down depending on the news of the day. If this schizophrenic market has you on edge, you are not alone. But can you control it? No. Can you outsmart it? No again. Do you think that you will be able to move your money out before the next crash and back in just in time to grow with the upward trend of the moment? Sadly, that is highly unlikely. Even inside traders who illegally use insider information to game the market and make their stock trades before a crash or boom end up losing in the end. (Read: jail) The lesson here: just ride the waves. Eventually they will come back up.
Imagine if you got spooked by the crashes in 1987, 1999, and 2008 and pulled your money out of the stock market. In about 4 short years, the market had recovered from its losses after these crashes and went on to rally to new heights. If you pulled your money out and switched to cash right before or after these crashes, you would have missed the subsequent rally afterwards. The market is about playing the long game. If you need the money in less than 5 years, don’t invest it in the stock market. But if you have the time you can ride out the market volatility and still end up with a net gain, even with volatile ups and downs.
How you invest is based on your own optimism and confidence in what the future holds. If you have full confidence in the future, the best time to invest is today because though you know that it will drop along the way, the market will generally be up. You can always re-evaluate and rebalance annually or semi-annually based on your risk tolerance and financial needs. If you are more hesitant and unsure of the future, you can invest slowly over time with dollar-cost averaging. Investing slowly at regular intervals avoids the stress of investing one lump sum all at once and potentially watching it go down as the market ebbs and flows.
In fact, thinking of the market as a wave is a good market analogy. The waves ebb and flow and the tide rolls in and out, but the water is always there (and sea levels are rising due to climate change). A rising tide lifts all boats, so why not get your boat out on the water? Sure, there are sometimes storms at sea but if you don’t get out on the water and put out your nets you will miss quite a great catch. Work with your financial advisor to find the right investing strategy for you and get yourself out onto the water.
