Is the market too high?
Markets have continued to rally in 2018, and while some investors are euphoric, others are concerned that a correction’s around the corner.
On Marketwatch, FundX Chief Investment Officer Jason Browne reminded investors that market conditions will change eventually.
“This environment pushes people to buy dips,” Jason said. “Will that last forever? Of course not. You have to hope people are being realistic.”
How can you be realistic and make sure you’re prepared for future markets?
Set realistic expectations
Recognize that markets change over time, and these changes are nearly impossible to predict in advance.
Predictions often come from knowledgeable people with logical explanations, but markets don’t listen to logic. Many pundits have been predicting the end of the bull market for years now, and yet markets have moved even higher.
Investors often try to anticipate future market action, and yet the markets often do the opposite of what most people expect. That’s one reason why market timing is so treacherous.
Markets also give false signals and make investors think something is going to happen when something much different happens.
So if you accept that you can’t know the future, how can you move forward?
Focus on what you know
In uncertain times, investors often get consumed about what they don’t know, so instead try to focus your attention on what you know.
For instance, you know that this has been a longer-than-average bull market, and that markets have been remarkably stable. Stock markets historically experience at least one 10% pullback a year, but it’s been nearly two years since the last correction. But no one knows today when the next decline will come.
You also know staying invested long term can provide the kind of investment performance that can change your life. Even if you happen to invest at the very worst times, like the peak of the market in October 2007, you still would have come out ahead as long as you stayed invested.
Plan for both up and down markets
All investors should plan for up and down market conditions. Whether you’re increasingly bullish or you’re preoccupied with the possibility of a decline, this is the time make sure your plans are securely in place. It’s a little like checking your rain gutters or closing all the windows when you think there’s a chance of rain.
Take some time now to make sure your investments are aligned with both your risk tolerance and your goals, and think through what you can do to avoid selling in a panic if the market changes and putting your future plans at risk.