There are a lot of concerns right now. Our country is headed by a person who believes that the way to get our country ahead is to make trade with other countries harder. It’s very likely that he has no idea how interwoven our economy is with the larger world economy. If he does, he doesn’t understand how close a lot of people are to not having means, and how nervous that can make them. A lot of smart people were trying to tell him not to do what he did, but he did it, so here we are.
His actions caused some market activity this week. If you were paying attention, you would have probably seen your portfolio go down. The stock market reacts negatively to change and uncertainty. The emotions that drive the stock market are happiest when things are predictable and always going up, when corporations stand to profit.
So what should you do when your portfolio drops overnight? Probably nothing. Sometimes you should just do nothing.
What Will People Do?
Some will sell out of their portfolio – at a reduced value – to avoid further losses. That’s probably not a good idea. You will not know when the market will go back up again and the data shows you will likely miss the boat on that. The best days in the market number few, but have big impacts.
Some will change their portfolios, adopt a less risky mixture to feel more secure. This is effectively the same as selling out (just for the portion you are reallocating.) You will take a loss on those assets, merely out of fear of taking a loss on more.
What About Next Time?
What you should have done, but cannot do once the drop has occurred, is prepare for the drop. You should have your emergency fund – the cash you may need for the next year or two – in a place that’s more secure. If you’re retired, you should definitely have that cash. Money markets and high-yield savings accounts help people avoid bad selling decisions. Those types of accounts can help you weather the storm until things return to normal.
Once your account is correctly valued and the market has returned to a feeling of stability, that’s when you should do something. I can’t guarantee that will happen, but it has happened historically very quickly. Right now you should probably do nothing. But I know that will be hard.
If you want to have a conversation about that, please book a meeting here.