Happy New Year!
As we are in a new Decade, and a Market that has been attaining new highs, I would like to pass on some of the words of wisdom of many Financial Advisors. When the market is at a high, we may at the most risk. When the market is at a low, we have a lot of opportunity. Now is the time to check your allocation and take a measure of your risk tolerance. Is it time to set parameters for your portfolio to exit the market or change course? The old saying is that it is not "timing the market " but "time in the market". The stock market has always had its ups and downs and degrees of volatility. Many times there are factors that affect the direction of the market. Terrorist attacks and Natural Disasters can have an immediate and devastating effect on the confidence one places in a market or company. Government or Corporate actions can influence the direction of individual stocks or entire industries. Understanding your portfolio and setting guidelines for actions or reactions is an important part of achieving your long term objectives. With the start of the new year it is an ideal time to evaluate your objectives, needs, and expectations.
One of the lessons I often refer to is about market dynamics. If ABC stock was at $50 and declined 50% to $25. What is the loss?
There are factors that affect the answer to that question, so the answer varies. for Example:
- If ABC Stock was purchased at $30 then sold, the loss to that investor would be $5 per share or 16.66%. However, if the stock was purchased at $20 per share, and then sold, there would be no loss but a gain of $5 per share or 20%. It doesn't matter that the value was $50. It is the action of buying or selling that has the actual impact.
- If ABC Stock was purchased at $50 per share but not sold there would be no loss, except on paper. That is called an unrealized loss. The unrealized loss would be 50%. In order to recover the decline in value the price would have to improve 100%. From $25 to $50. There is no actual impact on the loss without the action of selling. The value may recover.
- There is also Dollar cost averaging. If Buying ABC stock over an extended period, one's cost basis for the stock holdings will vary with each transaction.
Many of you remember the Bear Market or market crash of 2007 - 2009. The week of October 9, 2007 The DJIA closed at an all time high of 14,164 then came the financial crisis which led to a decline of the market over the next year and a half. The week of March 4, 2009 the DJIA was at 6,594. A decline of over 50%. It took 4 years, until 2013, for the DJIA to recover. During the week of March 1, 2013 the DJIA then passed the 14,164 2007 average high and ended the year over 16,500. Since that time there have been ups and downs in the DJIA. With the DJIA passing the 29,000 average this week, that is an over 100% gain since March 2013.
No one can factually predict what the future value of the DJIA or the S&P 500 will be 1 year, or 5 years from now. I believe there is a great likelihood that the markets will be higher but there is no promise or guarantee.
I have been a proponent of the US Market for quite a few years and still believe in the US Economy. With the current state of our economy and markets, low unemployment, low interest rates, low inflation, rising wages, consumer confidence. There are so many factors that impact the markets and our economy. There are no apparent immediate roadblocks or bubbles to cause concern however that can change in a moment or it seems in an instant. Historically, most declines have been shorter and quick. Gains have been over time and progressive, but there is no rule to cover every circumstance or situation. Just the comical advice I always give when asked for a stock market tip. "Buy Low, and Sell High" or "Buy early and often" or my favorite...… with as somber a face as I can possibly make. "Go home, hug your family, and tell them you love them." good advice for any day or any market.
We wish for you a prosperous, healthy, and happy year . Please contact us … we look forward to speaking with you. D
This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. It is meant for educational purposes only and should not be considered investment advice, nor does it constitute a recommendation to take a particular course of action. Please consult with a financial professional regarding your personal situation prior to making any financial related decisions. The DJIA and S&P 500 indexes are unmanaged and cannot be directly invested into. Past performance is no guarantee of future results. The hypothetical investment results are for illustrative purposes only and should not be deemed a representation of past or future results. The example does not represent any specific product, nor does it reflect sales charges or other expenses that may be required for some investments. 01/20