The Dow is back at 27,000 points, which is remarkable considering that the market shrank 35% in just one month. But it’s still continuing to fluctuate like it has been for most of the year. There’s still an election, so there’s a great deal of uncertainty ahead. And while a recovering market is good news, there are certain things you need to know as an investor going forward.
#1: 2020 Is Not Over
While everyone is happy that the market recovered, you don’t want to let your guard down. If you didn’t change anything in your portfolio, you should be back where you were in the beginning of January. But we still have an election, a virus, and escalating tensions with China. So, you need to make sure you have your risk tolerance and your allocation where it needs to be.
#2: There is Still a Great Deal of Uncertainty Ahead
The market doesn’t like elections, and what happened in 2016 is proof of that. We had eleven straight days leading up to the 2016 election where the market was down. And now, we have less than 100 days until Election Day. So, you might be wondering what you should do in the midst of all this uncertainty. During these times, doing nothing is often better than taking action based on emotion.
The market hates uncertainty more than anything, and the last election is a great example. So, don’t be surprised if the uncertainty ramps up in the last months leading to Election Day. Be prepared for what’s to come, and make sure you have the right expectations.
#3: What Should You Do?
It’s always a good idea to “rebalance and reallocate.” Make sure you think things through, especially with regard to how you did when the market was all over the place. Your portfolio needs to be completely aligned with your risk tolerance and with what you want to achieve. You also need to look at what your portfolio did in the worst possible circumstances. Spend a lot to time on this step, and now is the time to do it.
#4: Be Cautious with New Money
We’re at a different place than we were five months ago. The market went down 35%. And while it has recovered, you need to be cautious about any new money you put into the market because of how quickly it happened. Use “dollar cost averaging” by putting in a certain amount every month, and be patient because there’s a great deal of uncertainty ahead.
#5: Have a Plan
You need to stay focused on what’s most important (which are your long-term financial goals), so you don’t want to get distracted. It’s going to be crazy in the next three months, which is why you need to have a plan. The next 100 days will be volatile because of the uncertainty that comes from election cycles, so you need to be prepared for what’s ahead.
For more advice on how you can be financially prepared for the rest of 2020, be sure to get in touch with Trevor Shakiba at Shakiba Capital.