Almost four short years ago the Dow Jones Industrial Average surpassed a huge milestone: closing above 20,000 points on January 25, 2017. As we were approaching the milestone, investors were asking, can it go higher?  Will the bottom drop out? Should I buy, sell or hold? 

Fast forward to today and the Dow is now approaching 30,000 points! It is no surprise that investors are still asking those same questions. There has been a lot of volatility and there have been many reasons to exit the market over the four years since the Dow first reached 20,000. So what should you do now?

Stay Calm and Plan On

For long-term investors, the answer is almost always the same: stick to your plan! Trying to time the market is a dangerous game and often leads to making decisions based on emotion instead of knowledge. Money is an emotional topic and too many of us get emotional when investing. If you decide to sell and exit the market, you have left yourself with another tough decision – when to get back into the market.

As an example, let’s look at the most recent stock market sell-off in February-March 2020 caused by the COVID-19 pandemic. The Dow fell about -37% between February 12 to March 23. Those six weeks were very emotional for investors, and it’s easy to see how one could want to exit the market to stop the bleeding. However, the Dow quickly recovered those losses and is now positive for the year 2020. Had you acted on fear and left the market, you would have missed out on the recovery. Those that stayed true to their plan and stayed invested benefited from their decision.

What if I don’t have a Plan?

Having an investment plan is an essential part of long-term investing. Your investment plan needs to be tailored to your specific short and long-term wants, needs, and goals. Are you saving for retirement? A child’s education? Or maybe a new car? Regardless, your investment decisions need to reflect these goals.

The first step in developing a plan is to understand how much money you need to accomplish your goals. Once you know how much you have to save, you need to ask yourself how much risk you are willing to take with your investments. Remember, the greater the potential return, the more risk and volatility you will likely experience. One of the most important steps in developing an investment strategy is determining an appropriate target asset allocation for your portfolio. 

If you already have an investment plan in place, then now may be an excellent time to inspect and rebalance your portfolio, especially if it has been more than a couple of years. For example, your portfolio may be over-exposed to equities. In this case, reinvesting into a more conservative asset class will help rebalance the portfolio and offset some risk. Regardless of how you develop your investment plan, it’s important—even during times of fear and volatility when it will be difficult—to keep calm and trust it. 

The Past Four Years

There have been several causes for volatility and reasons to exit the market since the Dow first reached 20,000 points. We have experienced:

  • The first round of U.S./China tariffs (04/2018)
  • Mueller report released (04/2019)
  • S. House of Representatives launches investigation into President Trump (09/2019)
  • S. House of Representatives impeaches President Trump (12/2019)
  • First U.S. case of COVID-19 (01/2020)
  • The U.S. officially enters a recession (02/2020)
  • S. COVID-19 deaths pass 200,000 (09/2020)
  • S. Presidential Election (11/2020)

Each of these events caused some level of anxiety for investors. Still, after each of these events, the market recovered and continued to rise. The COVID-19 pandemic is far from over and the U.S. Presidential Election results will certainly be met with ongoing lawsuits and recounts. How both of these play out is yet to be determined, but one thing for certain is continued volatility.  

Summary

Investing will always be met with uncertainty, whether the Dow is 20,000 points, 30,000 points, or 40,000 points. It is rarely a smooth ride to that next milestone. This is why it is very important to stay focused on your investment plan and remind yourself of your goals. When there are times of uncertainty (when, not if!), remember to keep your composure, because it has historically paid off.

Austin Stagman is a Portfolio Manager with Bedel Financial Consulting Inc., a wealth management firm located in Indianapolis. For more information, visit their website at www.bedelfinancial.com or email Austin at astagman@bedelfinancial.com

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