Larry Bates, who has written an excellent self directed investing book titled “Beat The Bank”, offers this timely assessment of how we investors should view the recent market gains. You can visit Larry’s website @ larrybates.ca.
With Canadian and US stock markets at all-time highs and up about 15% so far in 2019, many investors are wondering if it is time to sell some stocks (stocks, ETFs or mutual funds).
I can absolutely guarantee you that stocks will take a beating at some point. Stocks can easily drop 10% or 15% on market mood swings. The next recession may well wipe out (likely temporarily) 25% or more of your stock portfolio value.
But before those kinds of market downturns happen, stocks may be 10%, 20% or 30% higher. And over long periods of time, North American stocks have always gone higher. If you have a perfect crystal ball, please let me know. Otherwise you must accept that the value of your stock holdings will likely be volatile.
So, the key is to select the right mix of stocks versus bonds in your portfolio and to adjust that mix over time as your circumstances, goals, time frames and ability to handle risk change. Do not allow the percentage of stocks in your portfolio to be at a level which would cause you to panic and sell if the market takes a dive. I know that is easy to say and hard to do because future circumstances and your responses are uncertain. But it is important that you think about it this way.
If you are long term investor, don’t worry much about the state of the current market and what all the TV talking heads (“sprint coaches”) are spouting. Make sure you have the right mix of diversified stocks versus bonds in your portfolio, keep your costs low and enjoy the summer!!
I suggest you take a few minutes to re-read Chapter 9 of Beat the Bank. Although it is only nine pages, the Mindset chapter may be the most important part of the book.