Is The Scare Over?

On Sunday I wrote a post that could be summed up by saying "I have no idea what will happen next but don't panic." Two trading days later and I can proudly say I still have no idea what will happen but panic is still not the answer. 

I've been repeating the exact same message in various places since long before the Financial Crisis. Things seem like they are different, and of course the details are, but the market reaction does not change. There might be a decline that might last a long time and go down pretty far but whatever the case, that decline will end and then the market will start to work back higher, eventually making a new high.

Without trying to predict anything, I would mentally be prepared for more worry or panic in markets as it sorts out whatever is going on with tariff threats or reality. A crucial point of understanding for navigating any sort of adverse market event regardless of whether there is visibility for it or if it comes out of left field is to have the proper asset allocation for your circumstance.

Are you 40, have a little bit in an emergency fund, a long time until you retire, no near term large purchases coming and a job you like? Then it really doesn't matter at all what the stock market does over the next little bit. 

Are you 63, on the verge of retiring, have enough for your plan to work and done something to mitigate sequence of return risk (like setting aside 18 months of expenses in cash)? Then it really doesn't matter at all what the stock market does over the next little bit. 

Are you 56 and a little behind where you think you need to be but still putting money away every paycheck? A decline actually helps you by buying at lower prices for a stretch. 

Are you...ok, you get where I am going with this. 

Having all of these ducks lined up makes it much easier to navigate through whatever it is we might be going through right now. If Monday's open left you feeling like you have too much in equities, at Tuesday's closing level the S&P 500 is less than 2% below it's all time high. Selling some, 2% from the high is not selling after a large decline which is a terrible thing to do. 

My comment is not about guessing what the market will do, if the scare Sunday night into the open on Monday's left you thinking you have too much allocated to equities then selling a little now, while the market is still high might be the difference maker to avoid selling after the next large decline.

The information, analysis and opinions expressed herein reflect our judgment and opinions as of the date of writing and are subject to change at any time without notice. They are not intended to constitute legal, tax, securities or investment advice or a recommended course of action in any given situation.