The title of this song from the rock group REM sums up the attitude of many investors over the last several months, and indeed, the last several years. An investment journalist summed-up the situation a few years ago when he used the term “disaster du jour”. What I’m getting at here is that for some investors, there is always a reason to not invest today.
The most common reason I’ve heard recently has been the government shutdown. But that’s not the only one—the China tariffs and the possible effects they may have has been a popular one as well. I don’t want to discount investor sentiment, because being able to sleep at night is a real concern. As an advisor, I sometimes walk a fine line between advising my clients with unemotional advice, and knowing my clients need to be comfortable with their investments.
Let’s take a look how the market performed after two of the more heralded government shutdowns in recent memory, keeping in mind that as of this writing (February 26,2019) the Dow Jones Industrial Average closed at 26,057.98:
December 5, 1995—the DJIA closed at 5177.45. Since then, the market has increased by fivefold…a gain of 403.3%.
October 1, 2013—the DJIA closed at 15,191.70 The Dow has moved up by 71.5% in this period.
Although government shutdowns are a phenomenon of recent government inefficiency, once they became en vogue, bickering politicians have enjoyed subjecting us to a number of shutdowns. This most recent shutdown was the twentieth since 1976. Our economy has kept chugging on along through them all.
If you think that maybe this an anomaly, an examination of “disasters” over the past five years may be interesting to recall:
· Ebola epidemic in western Africa
· Ferguson shooting and riots
· Charlie Hedbo attack in Paris
· Charleston church shooting
· Zika Virus outbreak
· Orlando nightclub shooting
My point in reviewing these events is to recall how terrible they were at the time. As uncertain as a government shutdown can be, each of these events were troubling and represented potential instability in various ways. Yet, each one of these disasters is sooner or later forgotten for another disaster and that one is replaced by another. As long-term investors, we should be prepared for this type of event and know they are part of everyday life.
A recent New York Times op-ed piece entitled “Why 2018 Was the Best Year in Human History!” reminds us that as a species we are making great strides and meaningful progress that are benefitting a larger portion of our planet’s inhabitants than ever before. For instance, more people than ever are literate, have access to clean drinking water, are getting online, and are living longer lives. Also, children are seeing higher survival rates, and are being vaccinated at history’s highest rate.
As an advisor, I’m often asked about my opinion on national or world events, and how those may affect the stock market or interest rates. We can focus on what’s wrong with this world--the wars, the threat of terrorism, famine, disease, and any number of things, or we can choose to be optimistic about our future.
Seemingly cataclysmic events will always continue to happen, and as investors it is helpful to have a plan on how to invest in the face of “disasters du jour”. There is no good time or bad time, no best or worst time, to invest. The best way to manage risk is to dollar cost average your deposits into the market by investing regular sums on an evenly-spaced interval into your investments. A reasonable length of time in the market will reduce your risk of fluctuation in your investments, and also reduce your risk (not eliminate it) that your investments will be down at the time you need to cash them in.
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