Beginning of October, What Is This Market Going To Do?
As the saying goes, if I had the answer to that question, I wouldn't need to work. As I type this on Thursday afternoon, the 9th of October, I read a headline that says, "US Stocks Slump a Day After Biggest Gains of Year." If you follow the markets even casually you may have caught a headline or two this year about the Dow Jones hitting an all time high, correct? Let's think about that for a minute. To the casual listener that would definitely suggest that your accounts that are invested in stocks should be flying high in 2014, correct? Not so fast....
I think it might be a good time for a reminder about "perspective" and what the media is trying to do. No offense to you folks that work in media for a living, but what a terrible job it must be to come to work everyday looking for something to report on. No rest, always under pressure to come up with a story. With a headline. So, the fact that the Dow hits a new all-time high point value is definitely a good headline and grabs your attention. The bigger picture story is that the market has been growing since the last bottom (March of 2009) and had inflated to a point by the end of 2013 that many thought it was about topped out.
Some hard numbers for perspective: the Dow started 2014 at 16,576; today it trades at 16,672. Google Finance says that's a gain of 0.58% for the year. Ten months and we're right were we started. But, we're at an all-time high. This sideways run that we have been on since January suggests to me that we may be topping out after five plus years of gains on the stock side.
So, what does all this mean to you? Should you really even care? On it's surface these little factoids make for good water cooler talk, and Christmas party season is right around the corner. Seriously, these facts may not matter to you at all.
And this is why.... the success of your financial life does not revolve around what the Dow Jones Industrial average did today. Or what it will do tomorrow, or the next day or the next year. The success of your financial life depends on several more important things: what your goals are, what your time horizon is, how much you have invested already, how much you are saving regularly, and how you approach investing (buy and hold, active management, do it yourself, hire an advisor).
Naturally I am biased. 
But after almost 20 years in this business I have seen a few things work and a few things not work. I was trained (even back to business school) that by buying and holding "good" investments, through good times and bad, you would win out and your portfolio would do well. That theory continues to work today; as long as America continues to be the most attractive place in the world for investment dollars, because slowly and steadily the demand for US stocks and bonds continues to increase, driving values up. But here's the bias, and my opinion on the theory; your portfolio might go up, but when, and how long will it take? The ultimate fear of any investor - a drop in value and it takes years to recover.
So, what's this market going to do? I go out on a limb in saying I don't really care. Because I do not subscribe to buy and hold. I subscribe to watching inputs diligently and making calculated buy and sell decisions based on market conditions. Are we always right, of course not. Do I think we are better off more often than not? Absolutely. In the models that I run (Trust Company of America accounts) I have been lightening up on stocks and international investments since May already. Your portfolio is well positioned already for a cool off in the US equity (stock) markets. I believe in being proactive, not reactive.
If we haven't talked in awhile this fourth quarter of the year is a good time to review your account. If your account is still invested mostly in mutual funds that we have held for years it is time for a tune up. There are many options available to us that allow for proactive management. I hope you had a great summer and I look forward to working with you this fall.
