Trade wars, rate cuts and Trump, Oh my!
Short-term swings that stocks will experience are less meaningful than they appear.
When most people worry about losing money, they generally worry that the stock market might crash. You don’t often hear how they are worried about the fast-rising cost healthcare, inflation is picking up or that tension in the middle east could cause energy prices to spike. But these risks are real and just as dangerous to money. Somehow, they don’t make it into our mind’s eye like a big market crash does.
Many other global/political/financial crosscurrents and factors could potentially cause an investor (read: worker, retiree, business owner, spouse) to worry about their assets. It’s rather ordinary to worry about money and the impact of current events on your personal short and long-term goals. Of course, it’s better to not worry about what may sink your prospects for a comfortable retirement, a child’s education, bequest or other financial goal you may aspire to. However, these days, with constant media noise, it’s impossible to view the many risks and not worry about them. Combined with the recent market run over the past several years, we should expect a crash any day – right? It certainly seems plausible.
At my first job, there was a poster hanging in the office, titled “Reasons Not to Invest in the Stock Market.” On it was a line graph depicting the last eighty or so years performance of the Dow Jones Industrial Average. The chart had various points in time marked and explained – each one a crisis of the day as a reason to not invest in stocks (WWII, Cuban missile crisis, 1987 crash etc.). The long-term message was clear though, as the chart always ended up higher than before - that is, there is no good reason to not invest in stocks if you are focused on the long-term.
Stock market returns are inherently lumpy and bumpy, which is why money invested in stocks shouldn’t need to come out of those stocks when things are down. When they are down though, bonds will continue to pay interest and alternative assets may also keep making money, both of which would offset some of a ‘correction.’ As risk managers, we ensure that all client equity allocations are right-sized so that short-term stock price swings (see fourth quarter 2018) will not sink the prospect of meeting your goals.
In the second quarter, the stock market continued up for 2019 as the prospect of a protracted trade war wanes and/or because the US Federal Reserve has lately taken a more ‘dovish’ stance on lowering interest rates. However, while the headline ‘year-to-date’ performance number appears to be a rich 17.35% through the end of June, a closer look reveals that the market is up less over the past twelve months, only 8.22%. Still nothing to worry about, but if you want to worry with me about the rising cost of healthcare….
As always, please call or email or write with any changes to your plans, or just to say hi!
Enjoy the summer.
IMPORTANT INFORMATION: You should not construe the contents of this letter as legal, tax, investment or other advice. No representation, warranty or undertaking, express or implied, is given as to the accuracy or completeness of the information or opinions contained herein by Lionshead Wealth Management, its Member and its employees, and no liability is accepted by such persons for the accuracy or completeness of any such information or opinions stated herein. This information does not constitute an offer to sell or the solicitation of an offer to buy any security.