Turbulence and the stock market — What’s Next?

QUESTION: What will the market do now?

Moisand: Given the behavior of the market recently, I suspect a lot of people are asking that these days, Tim. I do not know what the market will do, I’ve never known, and I believe if anyone tells you they do know they are trying to dupe you or they are fooling themselves.

It is a tricky proposition to move money around based on one’s theory about what the market is going to do next. If you are asking in order to move your money around, that sounds to me like you are speculating.

You are trying something that is notoriously difficult and has a spectacularly bad history as a way to protect a hard-earned nest egg over time. You could guess right today, but if you keep acting on subsequent guesses, your most likely outcome is that you will end up with an inferior result to a more prudent long-term investment approach.

If you are just asking because these wilder days and the hubbub that results are interesting, you are acting more like an investor. I have studied centuries of markets around the world and invested in them for over a quarter century. A good financial plan does not require an accurate short-term market forecast to succeed.

If your holdings are broadly diversified, aligned with your goals sensibly, and your assets are managed with discipline - prudently, patiently, and with your temperament and tax profile in mind, you shouldn’t be fearful about what the market does. Historically, that approach gets excellent results.

A sound plan expects large sudden fits from the markets far worse than what we have had recently to occur frequently. That’s what markets do. A good management process should result in making smart adjustments that will keep you aligned with your goals.

A good investor won’t let the press freak them out. The have a good plan and maintain perspective. The Dow can drop another 5,000 points and it will be where it was just a year ago. Good investors don’t worry about what their statement will say in such a short time frame.

Really the question to ask first is “are you a speculator or an investor?” Answer that for yourself and act accordingly. If you want to speculate you’ll need to be right about the market’s next move. If you want to invest, you need to accept what you don’t know and focus on what you can control like how you intake news, whether you are positioned appropriately for your situation, and if your management process is sound.

Dan Moisand, CFP, is a past national President of the Financial Planning Association and has been featured as one of America’s top financial planners by at least 10 financial planning publications. For more info, visit www.moisandfitzgerald.com or call him 321-253-5400 ext 101