Is it time to get out of stocks?
If your financial goals, risk tolerance or time horizon have changed, it certainly makes sense to review your investment
strategy and make appropriate modifications.
On the other hand, selling based on Russian military actions, concerns about inflation, or other current events is market timing, a strategy which has not proven to be effective.
Timing the markets in an attempt to reduce risk or enhance return is emotionally and intellectually appealing, but the reality is that there is no evidence that correct buy/sell decisions can be made on a consistent basis. In reality, tactical asset allocators (timers) have realized lower long-term returns than their counterparts who remain fully invested.
To accurately time the markets, an investor would need to be able to receive and act on information more quickly than other investors. In addition, timing requires not one, but two correct predictions: when to sell and equally important, when to reinvest.
Consider the number of people over the last couple of years who sold stocks based on the outcome of the presidential election or the spread of Covid-19. Even with the current decline, these investors have missed out on above average returns. The chart below illustrates the long-term growth of wealth by remaining invested through negative economic and political events.
For our clients who are currently withdrawing funds from their portfolios, we continue to hold positions in cash and bonds which will be used to cover your planned distributions without having to liquidate stocks at depressed prices.
If your personal situation has changed or the current events make you believe that your risk tolerance is not in line with your investment portfolio, please contact our office to discuss appropriate changes. On the other hand, if you are simply concerned about current economic conditions, we would still love to talk to you, but do not recommend changing your portfolio allocation.