FYI: Growth in the world economy is starting to peter out, and perhaps even a recession ahead is not out of the question.
How should an investor react to the many questions swirling about? Will the trade war with China come to a positive resolution? Will economic data turn decidedly negative? Will Donald Trump be impeached, and if so, what will be the effect on the stock market?
Perhaps some readers might expect that a Newsletter such as this can provide them with a blueprint for the future, helping them make decisions about their investments. Unfortunately, my crystal ball seems as cloudy as yours might be right now. As a result, what any given investor should do next, if anything, is impossible for me to definitely answer. So much depends on what your goals are for your investments, how dependent your finances are on their performance, how long from now you anticipate holding them, how anxious you get when stocks are falling, and a whole host of other questions. Since everyone is different, all I can do is tell you what I am doing, and answer in very general terms.
Personally, I have learned from experience that it is usually a mistake to sell when the markets are undergoing a rough period. As a long-term investor, I nearly always have seen that fund prices bounce back, usually sooner than one might expect. So, as long as you don't need your investment assets for a long while, sitting tight would seem to make the most sense. That's why I believe investors' stock market holdings should always have a future-looking time of reference of at least 3 to 5 years. If you can't honestly be committed to that, perhaps you shouldn't have money in the stock market at all.
Regards,
Ted
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Comments
Because of possible downdrafts in the stock market Old_Skeet, now retired, carries more cash than perhaps most. There are several reason for this. They are 1) it provides me an additional safety net should I need additional cash for unexpected expenses where I don't have to sell securities in a down market and 2) it provides me the ability to do some equity buying during down markets.
I'm now running what I call my all weather asset allocation (20% cash, 40% income and 40% equity) because it affords me everything necessary to meet my needs now being in the distribution phase of investing. The benefit of this asset allocation is that it provides me sufficient income, maximizes my diversification, minimizes portfolio volatility, and provides for long-term returns.
The 20% held in cash area provides me ample cash should I need a cash draw over and above what my portfolio generates plus it can provide the capital necessary to fund a special investment position (spiff) should I choose to open one during a stock market pullback. In addition, cash helps stabilize a portfolio during stock market volatility.
The 40% held in the income area provides me ample income generation to meet my income needs in retirement. It is a well diversified area that incorporates a good number of income generating type mutual funds.
The 40% held in the equity area provides me some dividend income along with some growth that equities generally provide which helps offset the effects of inflation.
Generally, for my income distributions, I take no more than a sum equal to what one half of my five year average total return has been. In this way principal grows over time.
Over the past five years, or so, the following years were up years for me. They were 2014, 2016, 2017, and thus far 2019 while 2015 and 2018 have been down years. With this, I now govern and invest with more caution than I did years back when I was in the accumulation phase of investing and had a higher allocation to equities.
So, for me, Dr. Madell's comments in this months newsletter offers up some good old sage thinking and wisdom. Hopefully, it will for you as well.
I wish all ... "Good Investing."
Old_Skeet