How to Invest in a Falling Market?
Over the last 60 days, my blog focused on a possible market downturn in 2021. I mentioned my concerns with Bitcoin's crazy up and down price movement. Then the manipulation of Game Stop stock, Robin Hood, and Reddit encouraged small, inexperienced investors to invest their money they could not afford to lose. The recent stock market move is a warning sign that the market is hyperactive, like when your child has too much candy or sugar.
Today's Yahoo Finance Morning Brief reports Bank of America analysts to comment on Nasdaq activity.
"Last week's significant net buying concentrated in Tech. Which was another near-record weekly inflow ($2.6B, the highest in over seven years)," the firm writes. "As a result, four-week average Tech flows have hit a record high." Said more simply, these kinds of inflows tend to be followed by weaker than average market performance going forward.
Interest rates continue to rise even as the Federal Reserve mentions it will continue to keep interest rates low. Most investors attitude believes the market will go even higher once we reach herd immunity by this summer.
I feel the market will have highs once the stimulus checks arrive in the public's pockets. Some economists report the new virus bill will create 7.0 million jobs. The big unanswered question what will consumers do with their stimulus checks. Economists forecast job growth, but the larger problem is when job growth happens. My wife owns a small business but is not optimistic about job growth in 2021. The reality is that she can only operate at 20% capacity. The capacity limitation cannot justify hiring more people, plus the vaccination of younger workers has not even started.
So how to handle your investing if a market downturn happens in 2021?
The first thing you need to do is ask yourself how much of a loss can you handle during a market correction. In my February 3rd blog, this is the first question I ask my new and existing clients. The reason is that it helps psychologically prepare you not to make emotional decisions about your investments. Here is the matrix that is mention in my February blog:
I can tolerate losing _________% Percent of % stocks invest
If you have a 401k account or IRA, do not sell or rebalance these accounts in a falling market. You might want to switch future contribute to the mutual fund or ETF that is not doing well in your retirement account. That inadequate performing fund will be cheaper to buy. Buy low, sell high. Make sure you write down your reasons for increasing your investment in a particular mutual fund, ETF, or stock. It will serve you well in the long-run.
If there is a market correction, and there will be. I cannot tell you when but it will happen. It will be emotionally hard not to panic, stay your course, and focus on the long term. If you need an investing emotional handholding, please feel free to text me at 213-804-3105 or email me at email@example.com.
Please note. Each person's investment and financial planning needs are unique to each individual. So, this is the main reason for me not giving a specific investment recommendation in my blog. However, you reach out to me via text or email; I will be happy to assist you. Have a good week. Get your shot when you can, wear a mask and keep social distancing.
P.S. It does not matter which vaccine you get. The point is to get the shot so you can return to work and get your life as close to normal as possible. Please remember your wealth is your health.