This year the media has been talking about recessions quite a bit. May, August and now in September. Spring, Summer and Fall. Perhaps it is just a seasonal thing.
Whenever we, as humans, hear something frequently, we tend to believe it, or at the very least allow the information to influence our opinions. With the media talking so much about recessions, many investors may begin to allow that to influence their financial decisions.
The media has been predicting recessions just about every year for the past 10+ years. It is what they do. Fear sells, and their job is to get people to tune in. Had investors followed their advice previously, they would have lost out on significant market gains.
No one can know for certain whether this time will be different. While we currently do not see many excesses in the economy, and the consumer (the main driver of U.S. growth) is in a healthy position, prolonged trade tensions could increase the probability of a global economic slowdown. It is true that at some point in the future we will see a recession in the U.S. – that is part of the economic cycle, but as Peter Lynch has famously said,
“Far more money has been lost by investors…trying to anticipate corrections than has been lost in corrections themselves.”
Each day, investors face the same decision:
IN OR OUT?
Do I want to guess whether to be in or out of the market or do I simply want to follow my long-term plan?
Will the news story of the day and/or emotions of the moment dictate my decisions, or will I use my customized investment plan as my guide?
We strongly recommend the latter.
Remember, your long-term investment plan is an asset allocation that seeks to provide growth consistent with your risk tolerances, time horizon, and liquidity needs. Equity investments carry higher risk, but also come with the possibility of greater returns. As a result, equity investors must have a longer time horizon. Fixed income typically generates less return, but also provides stability in volatile times, and can be used to fund liquidity needs in difficult market environments.
If anything changed in your personal situation, or if you have questions, please contact us to learn more about how SOL Capital can support your long-term plans.
©2019 The Behavioral Finance Network Used with permission.