Photo: Mercy from Wikimedia Commons: Source: Wikipedia
That’s what a lot of smart people are saying. They cite our political mess, our slow-growth economy, negative interest rates in Europe and Japan, rising corporate leverage, and accounting tricks and they figure a crash must be coming. So, with the stock market flirting with record highs and bond yields near record lows, is it time to sell everything?
The short answer is, probably not. It’s almost never a good idea to panic. The longer answer is, it depends. But it doesn’t depend on the market or the economy. It depends on you. Your investment profile should be determined by your goals and limitations: what you want your money to accomplish; how soon you need cash; what your tax situation is; what other unique factors you may face; and so on. Your investments are just part of your total financial profile.
People have specific needs, like saving for retirement, or funding their kids’ college education. They need most their savings to make these things happen. It’s all well and good for Bill Gross or Jeffrey Gundlach or some other hedge-fund billionaire to say the world is about to end and you should stock up on canned goods and potable water. For them, stashing a million dollars in a flower pot is a drop in the bucket.
But most of us need our money to keep working for us. We can’t afford to play games with it. Stocks may be making new highs, but that doesn’t mean they won’t keep moving higher. And just because interest rates are low doesn’t mean they can’t move lower.
It’s dangerous to structure your investments based on what someone else is doing. They’re not thinking about your needs or desires. It’s even more dangerous change what you’re doing based on what some high-profile celebrity is saying. Apart from the fact that billionaires are different from you and me, they’re often “talking their book” – making public comments that support their current investments. This could be malicious, or it could simply be our natural tendency to focus on information that supports what we already believe.
So, is this a good time to sell? If you can’t live with the risk of a significant downturn, sure. If your investment plan requires you to periodically sell stocks, doing so at or near a market high can be a good idea. But this isn’t necessarily a bad time to buy, either. Markets can keep going longer than people expect. Folks who moved their retirement funds into cash when then-Fed Chair Alan Greenspan spoke of irrational exuberance in the stock market watched it more than double over the next four years. And it never came back to that level in the bear market that followed.
S&P 500 during the late ‘90s. Source: Bloomberg
So don’t panic just because some financial guru says we’re facing financial Armageddon. I can’t remember a time when the talking heads on TV didn’t say that. The market has probably already “priced in” their issues. That’s why bull markets climb a wall of worry. The time to really get concerned is when no one else is.
Douglas R. Tengdin, CFA
Chief Investment Officer