Having concerns about when to invest or change your portfolio allocation while waiting for the economy to get better? Brian Spinelli, Senior Wealth Advisor/Chair of Investment Committee, explains how the market and economy work.
In greater detail, he provides information about:
- Investing capital with a three-to-five-year view
- Drawdowns are normal
- Recoveries are normal
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A common investor concern we tend to see is waiting to invest or wanting to change your portfolio in times like these; and waiting for the economy to get better in order to invest. Something to address is how markets tend to behave and historically how they have operated in both declines and in recoveries.
If you think about where the economy is today, the news does not look particularly good. Markets have corrected. The one thing with public markets, or investment markets, is they are trying to anticipate what the next six to eight months look like and pricing it in today. If you’re using economic news to determine when you will feel good to invest, you have to anticipate that the market has priced a lot of that in already today. In six to eight months, markets are going to be pricing in different events and are going to be forward looking as well. If you’re waiting for things to get better in order to start investing, you run the real big risk of having markets already recovered and priced in better opportunities going forward. Markets have priced in quite a bit of bad news for the next few months here and going forward. If that bad news does not materialize, markets have the chance to rebound.
One thing to anticipate is market recoveries.
Throughout history market recoveries tend to happen when the news is just getting less bad. It is not giving you an all clear to invest at that time, but usually the biggest recoveries and where markets return (most of their long-term returns are when the news is getting less bad and recoveries are taken) can hold even though the economic data isn’t showing that. So just remember when you’re investing – you invest capital with a three-to-five-year view, you have to recognize that when you’re doing investments like stocks or bonds, you really do need to anticipate that drawdowns are normal and that recoveries are normal to, and they’re not going to match one-to-one with what you’re seeing in the economy day-to-day.
