Last week the market hit all time highs, largely on news about three different vaccines. Earnings for publicly-traded companies was also mostly good news. Unemployment is starting to rise again, with the restrictions due to Covid.
Even given the market highs, people keep asking me about the swings in the market. Given all the uncertainty around the virus, shutdowns, stimulus, and the political transition, we can expect continued volatility. Here’s three things to keep in mind.
First, keep your timeline in perspective. By definition, investing is a long-term proposition. Anything short-term is really just gambling. On average, one of every three years in the market is negative. We’ve never had a negative 15 year period in the market, and only a handful of negative 10-year periods. If this is money you won’t need for 5, 10 years or longer, the best thing you can do is ignore the noise.
Second, remember that a market drop only means that the value of the investments you hold has declined, not that you have lost the investments themselves. For example, if you bought 100 shares of Spacely Sprockets at $25 a share, you have $2500 invested in Spacely Sprockets. If they release a great new sprocket, and the stock increases to $30 a share, you now have $3000 in Spacely Sprockets. You still have 100 shares. If the new sprocket catches fire and the stock drops to $20 a share, you may think you’ve lost $1000. But you still own 100 shares of Spacely Sprockets. You haven’t lost any of your investment – it’s just that, right now, what someone is willing to pay you for that asset is lower. You still own the asset.
Third, if you are still working, volatility can be your friend. Market drops are opportunities. If you are investing with each paycheck, or contributing monthly to an IRA, you are dollar-cost averaging. This is a great technique that allows you to buy more when things are on sale. Because that’s what market drops are – an opportunity to buy assets at a reduced price. I always say that buying low is like eating cold, mushy peas: It’s not exciting and it doesn’t taste very good, but it is good for you.
If you’re wondering where to get started with all of this, you can find more resources on our website at covingtonalsina.com, or visit our Facebook page.
Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Great Valley Advisor Group, a Registered Investment Advisor. CovingtonAlsina and Great Valley Advisor Group are separate entities from LPL Financial.
All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
The opinions voiced in this show are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investment(s) may be appropriate for you, consult with your attorney, accountant, and financial advisor or tax advisor prior to investing.