With the Stock Market Near All-Time Highs, What’s Your Next Move? 

Despite the pandemic and its severe financial shockwaves, the U.S. stock market is up significantly over the last 18 months; however, the economy is still technically in a recession. The Business Cycle Dating Committee, a panel that acts as the official referee on the U.S. economy, has not yet named an end date for the 2020 recession.

These contradictory messages, combined with rising inflation and increased government debt, lead many to think that we may be on the brink of a major downturn. As wealth managers for decades, we’ve learned that no matter how strange the market may seem at times, it’s best to ignore emotions. Even those that lead us to think the market “should” behave a certain way. Instead, we believe it’s best to step back and take a long-term, objective perspective.

Our thoughts on the current market? While we wouldn’t be surprised if the market took a breather here (even a 10% to 20% decline), we’re not necessarily expecting it.

Long-Term Investors Should Not Fear Downturns

Regardless of short-term action, we believe long-term investors should expect, not fear, downturns. Periodic weakness is a natural part of the process. We’d actually be more concerned if things went up in a straight line without some scary bumps. Just like a sprinter needs to stop for rest between spurts, short-term market declines are normal and healthy for the market.

Market Drops Can Spell Opportunity

While many fear periods of market weakness, these can have significant benefits. In the words of famed investor Shelby Cullom Davis, “You make most of your money in a bear market; you just don’t realize it at the time.” During market declines, we can find bargains in the form of solid companies trading at good discounts to our estimate of their valuations. Who doesn’t love a sale?

Times to Be Careful

For our clients, their time frame is our focus, not market timing. If you’re investing for a short-term goal (less than ten years), you may want to consider limiting your exposure to stocks. You don’t want to find your portfolio dramatically lower when you need to make a withdrawal.

Focus on Time in the Market (Not Marketing Timing)

If you’re investing for retirement (or other long-term goals), your best bet is to focus on time in the market so that you can take advantage of compounding returns. Market timing is the term for those who attempt to sell at highs and buy back at lows. While this sounds ideal, research shows it usually backfires, dramatically reducing your returns. In fact, research shows that staying invested helps you benefit from the market’s best days, which often follow the worst ones.

There are other strategies you can employ. For those in or near retirement, we often advise clients to maintain three years of living expenses in cash. This buffered approach can go a long way in shielding you financially, and more importantly, emotionally, when the market gets rocky.

The opinions voiced in this material are for informational purposes only and are not intended to provide specific advice to any individual. Consult your legal, tax, and/or financial advisor to determine what is appropriate for your situation.

[i]https://www.federalreserve.gov/econresdata/feds/2016/files/2016053pap.pdf

[ii] https://www.health.harvard.edu/mens-health/retirement-stress-taking-it-too-easy-can-be-bad-for-you

The opinions voiced in this material are for informational purposes only and are not intended to provide specific advice to any individual. Consult your legal, tax, and/or financial advisor to determine what is appropriate for your situation.

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Partnership Wealth Management (PWM), is a registered investment advisor located in Maryland. PWM and its representatives are in compliance with the current filing requirements imposed upon registered investment advisors by those jurisdictions in which PWM maintains clients. PWM only transacts business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements.