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ISAKOV Planning Group Blog
Wednesday, August 21 2019
Long-Term Investing in Uncertain Times

 


What will happen during the next tumultuous months of the Trump Administration? Will the threat of additional tariffs continue to cause large swings on Wall Street? How will the Chinese government respond and will that affect key industries and the market overall? The Administration’s tax cut was supposed to make the economy soar. Instead, concerns over deepening debt may be harming our long-term outlook.

All of these questions involve various measures of risk, which can affect investment markets, inflation, and currencies. Uncertainty, as illustrated above, unnerves investors and the markets. Individual investors cannot control uncertainty, but the way in which we react to it pretty much defines whether our long view of investing will be a success.

Uncertainty is not the same as risk. Uncertainty fuels risk. Uncertainty cannot be measured, but we try to measure risk. For reasons (that will not be explained in this post), stock markets despise surprises. They usually react badly to them, with large drops in value. Individual and corporate investors may sense further trouble ahead and try to move significant holdings into areas they believe are relatively protected from market volatility. On the other hand, others exploit that uncertainty and buy shares, expecting that the crisis will pass and rebounds are inevitable. Either reaction is not compatible with sound long-term investment planning.

One of the most difficult challenges in investing in uncertain times is to identify situations when emotion is dictating portfolio decisions and discipline yourself against these forces. That means determining whether you need to reevaluate your portfolio more than once annually. If investing for retirement, for example, try to tune out the daily market noise and think more broadly‑do you have the right investment balance of stocks vs. bonds vs. other options? If you limit the frequency with which you consider making significant changes, you will be able to resist the emotional urges that come with sudden environmental changes. The fact is, if your portfolio is properly diversified, one aspect of it will always underperform the market over the short term. But the other side of the coin is the one component should always perform substantially better than the market indexes.

Regardless of volatility in the market, continually putting money away is critical for successful long-term investing. In other words, don’t suddenly stop making monthly contributions to your investment account, simply because you are worried whether a massive tax cut will be passed. Investing for the future requires a discipline that must be learned (and earned!) and a detachment to today’s wild events and uncertainty.

Contact an Isakov Planning Group Financial Advisor today to discuss your long-term investment goals.  

Posted by: AT 01:17 pm   |  Permalink   |  Email
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