First, I must apologize for being a bit inconsistent in the last few weeks. I have had some health issues that have consumed a good portion of my time that I am hoping are behind me now, and I can resume a normal schedule with the posts. Granted this week’s post will not be as long as a typical one but it will be full of some useful information non-the-less.
Stock Market for Younger Investors
The stock market is definitely on a roller coaster ride the last few weeks, and I do not see an end in sight. Whether it results in the markets going up or down, it will indeed be a wild ride. But if you are Generation X or younger, I do not recommend that you do anything with your portfolio that is not scheduled maintenance. In fact, I highly recommend you continue to buy within your IRA or 401(k) as you normally would. This way, you are dollar-cost averaging the portfolio as you normally would and are hopefully getting some good buys on the dips that we are experiencing. But I do not recommend you move your portfolio to a safer investment unless you really risk-averse then it may be prudent for you to shift to a safer asset class for your peace of mind. But under no circumstance do I suggest or recommend you try to time the markets, that is way too difficult to do correctly. Without knowing your unique situation, I do recommend that you maintain the status quo and keep doing what it is you have been doing in the past.
Baby Boomers
If you are a Baby Boomer, who are retired or nearing retirement, your situation is a lot different from a Generation X and younger. You do need to consider the preservation of capital and your retirement nest egg. If you are in this situation, I do again, without knowing your unique situation, recommend you to take steps to preserve your capital. But I am not advocating that you shift from a higher percentage of equities to safer investments in a wholesale fashion. I would, however, recommend that you shift two to three years of “Requirement Minimum Distributions” to more liquid investments. Be that a money market account, short to medium term CD’s or higher quality bonds and degree cash. By doing this, now, you will be selling while the market is relatively high and not later when the market could be considerably lower and at possible losses. It is better to lock in the gains now and leave the funds in your 401(k) or IRA to withdrawal later when you are required to do so.
The Outlook of Things
It is true that no one can predict the future and that the markets behave irrationally, and I do not see that changing any time in the near or distant future. In the last two weeks, the ten-year and two-year Treasury yields have inverted, and that has been a historical sign of a possible recession. No that does not mean I am predicting one now, but in a year to 18 months, if history has any indication, we could indeed experience one. In 2008 and 2009, during the Great Recession, the government was in better shape and in a better position to assist the economy and ultimately guide the economy out of the situation. Interest rates were higher to start with than they are now, so the Federal Reserve had more to work with. With rates as low as they are now, it will be much more difficult for the Fed to affect the supply of money as they did the last time. The same can be said with the tax reduction we received in late 2017 when the economy did not need a boost at that time, and all it has done is create larger deficits for the government to try to overcome. Again, lower deficits allowed the government to spend more on infrastructure in an attempt to stimulate the economy with increased spending and modest tax cuts mainly to payroll taxes and slight adjustments to the income taxes. About the only tool, we currently have to combat a recession are payroll tax cuts that will stimulate the economy to a degree but could hurt us in our retirement as those tax cuts will affect our long-term Social Security payments and need years or decades from now. And the only real positive we have going into a possible recession is unemployment is at all-time lows, but even that may not be a saving grace.
I am going to do a better job of keeping my schedule for posting every Tuesday and will now that my health issues seem to be behind me. Yes, times are indeed uncertain, and I do think that they may remain that way for a while despite what people say. Be vigilant and do what you need to do in order to be able to sleep at night. Only you know your risk tolerance and what actions you need to take to enable you to have peace of mind. But remember, as Warren Buffett says, “Be fearful when others are greedy and be greedy when others are fearful.” We have had a decade long bull market, and there have been some extremely greedy individuals during this time. Now that we are in a period that is uncertain people are becoming fearful, which means opportunity for the vigilant investor.
If you have any questions or would like to leave a comment, I always welcome those. If you need financial planning, investment advice, or Social Security analysis, please contact me directly at kirk@kgmeyerpc.com. To receive special notice of posts and books, please fill out the form below to join our mailing list.
