The first quarter of 2019 was a welcome sight after the market’s wild ride in 2018. In 2018, we had 3 corrections, 4 rate hikes and a mid-term election – just in the U.S. I’m sure you remember the hysteria during each of the 3 corrections, the worst being in December!
Q1 2019 brought gains due to several positive items. The Fed will likely be far more accommodative going forward, the U.S.-China trade issues may reach a conclusion soon, and employment numbers continue to be strong. All of this brought widespread healthy gains: the S&P 500 gained 13% (324 points) and the DJIA gained 11% (2,582 points) in the quarter. What a great start to the New Year, and welcome news after a rocky 2018.
The Correction No One Seemed to Notice
Sometimes people will tell me they are waiting until the time is right to invest. Typically, they’re waiting for the market to correct so they can invest at a discount. I ask these people, “Did you invest during the 3 times the market corrected last year?” The answer is typically no. Perhaps they were unaware the correction happened, or they were waiting for prices to go even lower and then missed out.
We experienced another correction in Q1, but barely anyone noticed. I certainly didn’t see any headlines about it. Remember—corrections can happen to the upside or the downside. It is simply the market correcting to a more appropriate valuation. Yet the recent upside correction of over 20% from the lows of December passed with little fanfare. I am not sure why the media does not highlight favorable market news… Yet the mantra seems to be “if it bleeds, it leads.” It seems only the downside corrections get any media attention! Even when the market is up or at new highs, we see skepticism and worries about “what goes up must come down” and “Could it be the next 2008?”
I guess “The Market is Doing Great: Go Out and Enjoy the Sunshine” is not a particularly gripping headline.
Who wants to live their financial life that way, only focusing on the bad news? Certainly, you should not ignore bad news...just make sure it does not command the majority of your focus. After all, markets are positive in most years!
Tune Out the Noise. Focus on Your World.
Investors need not concern themselves with media noise. In fact, it is far more successful to your financial health to tune out most of the coverage, in good and in bad times.
It is far better to focus on the news surrounding your own world. Did you recently get a promotion or raise? If so, then save it by increasing your monthly savings plan and/or making a lump sum contribution to your own portfolio. Did you just finish paying off a loan of some type? If so, put the same amount you were spending on loan payments toward deposits in your saving and investment accounts. Are you expecting a tax refund, or do you owe a tax bill? As investors, we save when we can, and we spend when we need to.
If you have a goal in mind, make a positive plan to accomplish it. Do not delay the plan based on factors completely outside your control. Market events, political climates or economic data have almost nothing to do with your personal ability to save or your need for funds. Certainly, if markets or economies experience a very bad cycle, then perhaps it would affect your income and thus your ability to save. If they are doing well, then you may be able to make greater progress…but for most people, these macro events do not impact their personal income level. What truly matters for your goals is all right in your own backyard!
Markets provide investment lessons all the time. Sometimes you really have to look for them and other times they are in big bold letters right in front of you. The market swings of 2018 and the first quarter of 2019 provide wonderful lessons:
- Now is always the best time to save. We always look for value when investing savings. Of course, we do not want to buy assets when they are “marked up.”
- Don’t rely on a crystal ball for your future. No one knows the next turn markets may take. A diversified strategy allows you to benefit long term, even if assets zig and zag in the short term, without having to guess the future. You can see in the graphic at left how much jumping in and out of the markets can cost investors.
“The future depends on what you do today.”― Mahatma Gandhi
We will certainly see more corrections downwards and upwards in the market’s future. I would not be surprised to see a “reversion to the mean” in which asset classes slow down from the breakneck pace we have seen in Q1. But I am certainly not wringing my hands and worrying about such a move. That is the beauty of a properly diversified strategy designed to thrive for the long term. Enjoy the spring, and seize the opportunity to plant some money and watch it grow!