Written by: Derek Majkowski. Any opinions are those of Derek Majkowski and not necessarily those of RJFS or Raymond James.
Over the course of the last several months, I have been having a number of nervous conversations with clients on what to do based on the next important upcoming “event” that can impact the market. The topics have ranged from the Brexit vote, to multiple Federal Reserve meetings addressing interest rates, and of course the upcoming election.
Human nature, the 24 hour news cycle, and yes, market volatility and swings in asset prices - all provide catalysts for feeling a little nervous, and in some cases causes reactionary behaviors when handling ones investments and money. These reactions may occur in preparation of an event, or immediately following the news of an event.
It is true that macro events, monetary and fiscal policy, politics, and geopolitics can, and do, impact asset prices and market volatility. The market reaction may be due to events we are prepared for, or those that catch markets and investors off guard. In other words, we can either plan for an event based on the calendar, or wake up and be completely surprised by an occurrence that causes a disruption.
In all cases, people do not look to investing as a way to lose money. When there is an event that we are aware of, like the upcoming election, we really don’t want to make any foolish decisions ahead of a known, and potentially market moving event. That is completely understandable, and it is reasonable to review your entire strategy ahead of such events.
So what should one do?
First thing is to have a sound and flexible investment plan in place.
Fortunately, history has taught us that overreacting to things before a known event with an unknown outcome, often proves costly. Please see the recent Brexit vote and the subsequent market reaction. Also, we have come to see in most cases the first “post-event” reaction is often wrong – so reacting immediately can often prove to be incorrect as well.
The point is, no one knows what is going to happen, so don’t stress about the possibilities. When you have a plan that focuses on long-term investing while taking into account short to intermediate term liquidity needs, there is no need to overreact before or immediately after a known event. Stay disciplined on reviewing your allocations and holdings, but don’t let events dictate time tested strategies.
When you have a good plan with proper liquidity and flexibility, one can often look for buying opportunities when short-term events or disruptions knock stock prices lower. If the opposite happens and asset prices go higher, then you are there to participate appropriately.
In either case, with a sound and risk appropriate plan, you are controlling your money in conjunction with these perpetual current events, not the other way around.
Investing involves risk, investors may incur a profit or loss regardless of the strategy or strategies employed.