The Dow Jones Industrial Average (DJIA) fell by 961 points today earlier today. While it recovered afterwards, the index still closed 766 points lower. It’s the worst day for stocks since January and the market is down for the sixth day in a row. We haven’t seen a losing streak like this since last October. Those losses then eventually lead to a bear market and made 2018 the worst year for stocks since the Great Recession.
Even with the losses this week, the markets are still up over 11.5% for 2019. The year isn’t over though. Prior to the October retreat last year, the DJIA was up over 7% for 2018. The markets can turn that quickly. On the other hand, history shows that they go up over 80% of the time.
Despite knowing that the markets slowly rise over time, fear of loss can push investors towards making rash decisions. If you’re worried about the markets, you’re in good company today. The difference between you and most investors, however, is that you have an advisor to reach out with your concerns.
Part of the benefit of working with an experienced advisor is the fact that they have seen days like today come and go. I still recall when the market finally broke loose back in 2008. That happened in September, though I had been warning people about the danger for over a year prior. The right course of action was to stay the course at the time, though many sold at the bottom. The DJIA has grown over 155% since that day.
Just like back then, I’ve been warning investors for a few years about some of the risks I perceive in the markets. To combat these risks, our focus needs to remain on asset allocation. We can’t control a plane falling out of the sky, the President enacting policy via tweet, interest rates, or any of the other news that came out this week. What we can do is find a happy balance between risk and reward. A properly allocated investment portfolio is the only way we can do so.
Financial professionals have known this for decades. Modern Portfolio Theory dates back to the 1950s. We have far too much data that backs the theory up. Sure, the talking heads on the financial news networks are always pitching bigger and better new investment strategies… but they’re wrong. Their opinions are devoid tax implications or the transaction costs investors face.
Asset allocation doesn’t get as much press other financial stories. Part of the that is the fact these networks make money from advertisers who make money when people place trades. Another factor is the fact that it’s simply not ‘sexy’. Of course, on days like today, even the commentators on CNBC had to sullenly agree that diversification is the best way to invest.
Slow and steady might not be exciting, but it does win the race. Just a week ago, we were at record highs. Who knows what next week will bring? If you’re still not sure putting more money into the markets is the right thing to do, reach out to me. And keep in mind… The worse the news gets, the better the price is.