Please...pause for a moment, and let's put things into context before we even attempt to answer the looming question that is lurking in the headline above.
The stock market has been experiencing a significant downturn in recent days as fears of the coronavirus continue to strengthen and penetrate the global economy. On March 16, 2020, the stock market took another nosedive as massive panic continues to disrupt daily life as we know it. Stocks have fallen by almost 20%, and the 20% mark indicates what is called a "bear" market.
As economic history has taught us, when infused by fear, the stock market can plummet in a heartbeat as investors rush to move their assets into cash all at the same time due to the uncertainty in the markets.
The irony about all of this is that as an investor, regardless of how pristine things may seem at any given time, one should NEVER get too comfortable.
As an investor, one should always focus on the "downside risks" when allocating capital no matter how good looking things appear to be on the surface.
As an investor, one should always construct their investment strategy based upon anticipated downturns.
Why?
Because market downturns have always existed, and always will exist so long as there is such thing called an "economy."
Just follow the money.
Do not listen to what they say.
Instead, you should be paying attention to what they do.
Warren Buffett, a man whom I highly look up to and have studied for a long time, has stated numerous times that most investors should put their money into index funds. Meanwhile, if you had taken a look under the hood, you will have noticed that Mr. Buffett has spent the last year or so accumulating record levels of cash holdings within his holding company, Berkshire Hathaway.
Anyone who pays attention to the investment community knows that Mr. Buffett is extremely methodical about every move he makes. No exceptions!
*Photograph by Alex Wong/Getty Images*
Perhaps, one of the main reasons why Mr. Buffett has been increasing Berkshire's cash position to record levels is because over the past few years the majority of stocks have been massively overvalued relative to its earnings. Especially with popular tech stocks that have yet to turn a profit.
So I say again - "follow the money."
There is a reason why the rich get richer every time the economy climbs out of a slump.
Do as they do, NOT as they say.
Now let's address the looming question of the hour...
What To Do If Your Investment Portfolio Is Taking a Beating!!
The way I see it is that it's not all that complicated.
You have two choices:
If you have a clearly defined and disciplined investment strategy in place that focuses on the "downside" risks regardless of the current market conditions, you should be well-positioned to take advantage of sharp downturns in the market at any given time.
If you are lacking a clearly defined investment strategy that focuses on the downside risks, and you are unsure of what to do, then perhaps the best thing for you to do is to DO NOTHING and ride the wave.
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Disclaimer: Hudson Wealth Management, LLC (HWM) is a FINRA registered investment adviser firm. Investing in securities involves risks, and there is always the potential of losing money when you invest in securities. Before investing, consider your investment objectives and HWM's fee schedule. The information provided herein is for illustrative purposes only and does not constitute personalized investment advice, recommendations or solicitations to hold, buy or sell any investment or security of any kind. All images and return figures shown are for illustrative purposes only and are not actual customer or model returns. Past performance does not guarantee future results.
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