HERE IS WHY I DON’T trade, and don’t make big market bets, and why you shouldn’t, either.
Headlines last Monday at 6 a.m.: Nation Braces for Brutal Week, At Least a Fourth of U.S. Economy Goes Idle, British Prime Minister Boris Johnson Hospitalized.
Headline at 9:30 a.m.: Dow Surges as Tech Stocks Rally
I got spooked last weekend. It was epic. I was actually scared after days of hearing about the bungled federal response to the pandemic and about states fighting over medical supplies. I wasn’t about to sell stocks—I knew that would be a dangerous emotional reaction—but I felt compelled to warn family and readers that things would be even worse than most people expected. In initial drafts of this column, penned early on Monday morning, I wrote that I was preparing mentally for the worst bear market of my lifetime.
Three hours later, the market bolted to its sixth-best percentage gain in 87 years.
In the spirit of Stephanie Grisham announcing that she was stepping down as White House press secretary after never holding a single briefing, I can confirm here that I am no longer Wall Street’s most influential market strategist.
It’s so seductive and ego gratifying to believe we know something others don’t. I was bent sideways all day Monday, desperate to avoid admitting what I’ve actually known for a long time: I’m a reliable contrarian indicator. My thought process was thoroughly corrupted as I went through the stages of grief—on a day when I was making thousands of dollars, thanks to my portfolio’s 76% allocation to stocks.
Of course, one day’s or week’s market action doesn’t sound the all-clear. What if I really, really believe things are going to be much worse than the market expects? Frankly, my investment stance shouldn’t change much.
Our individual market outlook matters little as long as we’re invested within our risk tolerance. We can get modestly more conservative or aggressive, but we should never make major, sudden portfolio shifts. Buying when things seem safe and selling when we get scared is the Exhibit A of bad investor behavior.
After my March 25 article appeared, a few guys on social media took me to task for writing, “25% to 30% off the high is a good opportunity” to buy, which I had indeed been doing. No, they said, this market is heading lower. Most people will die and go bankrupt before the stock market recovers, wrote one poor socially isolated soul.
Guess what? The universe doesn’t care what you or I or unverified Twitter accounts think will happen next. But it does seem to reward us for observing basic truths, following simple rules and maintaining good habits. In the investment world, here are some of them:
There’s another rule I should probably add to this list: Make sure your portfolio fits with your broader financial life. Which brings me to perhaps my biggest worry: My job is still in jeopardy. As a 58-year-old father of one recent college graduate and another preparing to participate in a virtual baccalaureate, my first responsibility isn’t investment growth, but ensuring I’ve got a big enough financial cushion to fall back on.
Therefore, I’m recommitting to a conservative stance outside of my retirement accounts. I have a decent chunk of cash in an online savings account, though not as much as I’d like. Now is a great time to save more, while I have no commuting costs and I can’t dine out.
On top of that, my employer recently suspended its 401(k) matching contribution. That prompted me to stop my own contributions and instead set up automatic transfers of the same amount to savings. Over the next year, I may make IRA contributions instead of funding the 401(k). But I’ll make that decision based not on my feelings about the stock market, but on the safety of my job.
It’s been another crazy week. I’m grateful that, when fear knocked, I may have answered the door—but I chose not to make a contribution.
William Ehart is a journalist in the Washington, D.C., area. Bill’s previous articles for HumbleDollar include Different This Time, Luck of the Irish and No Sweat. In his spare time, he enjoys writing for beginning and intermediate investors on why they should invest and how simple it can be, despite all the financial noise. Follow Bill on Twitter @BillEhart.