Too many times the last several years
The voices of the media assailed our ears
With shouts and whispers of events un-numbered
This is UNPRECEDENTED, they thundered
Did everyone in media lose their thesaurus?
Or are they so lazy they want to bore us?
They say they want to one up each other
Yet use the same words for news they cover
Let me help out and give an assist
Other words they can use from this list
Unparalleled, unequaled, unmatched, and unrivaled
Extraordinary, uncommon, they can add to their bible
Overusing a word dulls its relevancy
Inducing a collective yawn of complacency
Yet on and on they natter and prattle
Oblivious to those tuning out their babble
It is true there have been exceptional events in the market recently. Unmatched moves, both up and down, since the beginning of the year have unnerved some and emboldened others. Some have reduced exposure to the markets while others have gone all in trying to catch the next wave.
“The concept that must be learned is that the market can and does fall substantially from its top periodically. Date, scale, and reason can and will be different each time.”
― Naved Abdali
This is common behavior in a volatile market. For the most part no one guesses correctly on the market swings or even on which companies will benefit. Some are lucky, occasionally, but sustained success is uncommon.
We at Thrive believe the best way to deal with market swings is to rebalance portfolios. By doing this we are ready for any upswing. When the market turns up we are positioned to take advantage. As the market goes up our portfolios become unbalanced and we re-balance again, selling some of the winners.
“Stock Traders are always trying to time the market. But an investor tends to be thinking bigger, more broadly, and more holistically.”
― Hendrith Vanlon Smith Jr.
A major aspect of our portfolios is diversification. We invest in Exchange Traded Funds (ETFs). For simplification, ETFs often times track an index. For example, one ETF we use tracks the Russell 2000. It typically holds over 1,900 stocks. Our portfolios invest in multiple ETFs that collectively own thousands of stocks.
“Everybody is a long-term investor till the market drops by 10% or more.”
― Olawale Daniel
Currently the Federal Reserve is in a “raising interest rate” mode. They hope this will quell inflation. It is just a question of how high the rates must rise. Rising rates make it more expensive to borrow money. (See mortgage rates.) Many companies require loans to grow their business. As loans become more expensive, prices for products rise, which is a way of slowing demand. Slower demand means reduced profits, thus the unequaled market drops.
The housing market in the U.S. is an example of how rising rates slow demand and reduce inflation. As people are unable to afford more house, the prices for houses necessarily drop. It does not happen overnight but eventually, if you must sell, the market will determine the price you can demand.
“You should welcome a bear market, since it puts stocks back on sale.”
― Jason Zweig
An adage that has served us well in times like these, “This too shall pass.” The bull market will return and our portfolios will rise. Then after a while the market will go down and reset its value. Such is the ebb and flow. We can predict it will happen, just not when.
If you would like to discuss this further, please give me a call.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. No strategy assures success or protects against loss.
ETFs trade like stocks, are subject to investment risk, fluctuate in market value, and may trade at prices above or below the ETF's net asset value (NAV). Upon redemption, the value of fund shares may be worth more or less than their original cost. ETFs carry additional risks such as not being diversified, possible trading halts, and index tracking errors.