Market Timing Reminder: Just Say No

Should you sell out of the market and go to cash when you’ve got a hunch markets are headed lower? Of course not. While moving to cash might feel good mentally and help you avoid short-term stock market volatility, it is unlikely to be a wise move over the long term. Here’s why: When your money is in the stock market and the market is down, you may feel like you’ve lost money, but you really haven’t. At this point, it’s a hypothetical, or paper, loss. A turnaround in the market can put you right back to breakeven and maybe even put a profit in your pocket. If you sell your holdings and move to cash, you lock in your losses. They go from being paper losses to being real losses with no hope of recovery. And then you’re in the hole, forced to make up for your losses just to get back to square one. While paper losses don’t feel good, long-term investors accept that the stock market rises and falls. Maintaining your positions when the market is down is the only way that your portfolio will have a chance to benefit when the market rebounds. And remember, no market

July 10, 2023 No Comments

Steps to take in a jittery market

It’s difficult (if not impossible) to say what stocks will do in the near term. And well-meaning investors who are trying to do the right thing by not being too hands-on with their portfolios (see this market timing article) can end up, inadvertently, with an investment mix that’s too risky, simply because they’ve been letting their winners ride. So, here are five steps to conduct a quick portfolio stress test to see if it’s time to talk with your Azzad advisor about making a change. 1. Check up on your baseline stock/fixed income mix In strong markets like the bull market that has prevailed since early 2009, most investors tend to leave well enough alone. But if you haven’t reviewed your portfolio’s allocations recently, use the market volatility as an impetus to do so. A hands-off portfolio that was 60% equity/40% fixed income in early 2009, for example, could be more than 80% equity today. And meanwhile you’re older, which means you should likely be in more conservative investments. Rebalancing is in order in many situations. As discussed here, rebalancing can help align your portfolio’s allocations with your risk tolerance, which is your ability to withstand losses without having to

September 4, 2019 No Comments

Market timing can cost you money

Over the past year and for periods of five, 10, 20 and 30 years, the average mutual fund investor has underperformed the markets for both stocks and bonds, according to research firm Dalbar. The Dalbar data leads to the inescapable conclusion that most investors are really terrible at investing. They panic and sell at the wrong moments, hurting their chances of success. The shocking reality is that investors actually made themselves poorer by giving in to their whims. Just look at the Dalbar results for 2018. The inflation rate was 1.93 percent, which means that investors would have had to earn that just amount to tread water. Instead, the average stock fund investor lost 9.42 percent, for a gap of more than 11 percentage points! Consider a few more dismal data points for stock mutual fund investors. Compared with the S&P 500, through Dec. 31, 2018, those investors underperformed by: — 5.88 percentage points, annualized, over 30 years; — 3.46 percentage points, annualized, over 10 years; — 4.35 percentage points, annualized over 5 years. The lesson investors can learn from this research is the value of staying the course and not making any sudden moves. According to Dalbar president Louis

September 4, 2019 No Comments

Comment on recent market volatility

This week, US markets suffered their worst weekly performance of 2015, leaving the S&P 500 Index in negative territory for the year after being up nearly 6% during its mid-July peak. So, as an investor, what should you do about it, if anything? Research shows that emotional selling, or bailing out of investments because things are scary, is all too common. This is bad because investor behavior and poor decision-making can adversely affect returns. A study released in 2014 showed that the average individual equity investor had a 20-year average annual total return that was 4.20% less than the index, directly related to poorly timed decision-making.* Take the emotion out of your investment strategy by doing these five things when markets get choppy: 1) Know your history Since 1900, there have been 35 declines of 10% or more in the S&P 500. Of those 35 occurrences, or “corrections” as they’re sometimes called, the index fully recovered its value after an average of about 10 months. With that perspective, if your investing time frame is years or even decades from now, it may be best to sit tight and stay invested. Of course, recent fluctuations have not put us in correction

August 21, 2015 No Comments