I made a mistake when it comes to my investments that I hope you can help me with. I’m in my early 40s and in good financial shape. My salary more than covers my living expenses and other than a small mortgage, I am not in debt. My main goal when it comes to investing, or I should say my only goal, is my retirement. I plan to work at least another 20 or 25 years. I am single and have no dependents. The day after the election I sold my entire portfolio and went to cash. I was nervous because everyone was saying that if Trump won the election markets would crash and I figured I would get back in the market when things settled down. Obviously, I was wrong. My question to you is do you think it is a good time to get back into the market? Do you anticipate any downturns or a crash in the market that I should be concerned with? Needless to say, I feel pretty stupid.
First of all, don’t feel stupid. I don’t know one investor, including myself, who has not made mistakes when it comes to investing. It’s the nature of investing that you cannot be right all the time. Therefore, there is no reason whatsoever for you to consider yourself stupid. Rather, you should look at this as a learning opportunity.
When it comes to predicting short-term gyrations in the market, it is impossible. Sometimes when it comes to the market, good news is bad news and bad news is good news. Markets are irrational over the short run. Therefore, I have no idea if we will have a correction or when the next market downturn will occur. In addition, I have no idea how long they will last. I believe downturns and corrections in the market are normal and sometimes I’m more concerned when they don’t happen as opposed to when they do happen.
I’ve always believed it is a fool’s game to try to time the market. When you time the market, you have to be right twice – once when you buy and once when you sell and I don’t know anyone who has been able to do that consistently. Therefore, I don’t even try to do it. Rather, what I tend to focus on is an individual’s goals and objectives. Those are more predictable and a much better indicator as to how you should invest your money.
When someone’s goal is 20 or 25 years down the road, my general view is that it is immaterial where the market is today. After all, the focus is not on next week, next month or even next year; rather, it’s 20 or 25 years down the road and I have no doubt that markets will be substantially higher at that point in time. Therefore, for many investors, I would say to just jump back in. However, I do recognize that no one wants to see their investments retreat after just buying them. That is why another strategy that I sometimes use that you may want to consider is what is known as dollar-cost averaging. Under this strategy, as opposed to investing your money all at once, you invest it on a regular basis over a set period of time. As an example, you may choose to get back in the market by investing the same amount of money monthly over a six-month period. The theory being that by investing on a regular basis, no matter where the market is, you tend to reduce some of the short-term volatility out of the market.
For someone who is a conservative investor and very concerned with short-term volatility, dollar-cost averaging is a very good strategy to follow. In the situation at hand, if you were to follow a dollar-cost averaging strategy, six to nine months would be a good time frame. On the other hand, if you consider yourself more of a moderate or moderately aggressive investor, I would probably lean towards jumping back in the market.
As I mentioned earlier, every investor, even the greats such as Warren Buffet and Peter Lynch, make mistakes when it comes to investing. However, what distinguishes them is the fact that when they make a mistake they admit it, correct it and move on. They don’t focus on the past; rather, they focus on the future. My advice for investors is that they shouldn’t be looking in the rear view mirror; rather, like the great investors, they need to look forward. Don’t focus on what is happening currently in the market, what the talking heads are saying on TV or even what tantrums the children in Washington are throwing; but rather, focus on the most important thing and that is what you’re trying to achieve with your money.