We can go to any time in history and find reasons why we could be uncertain of the future. In just the past two years alone we have seen a global pandemic, changing political landscape, a war, and more. The list could go on and on, but the theme remains the same, there’s always something happening.
Once times are changing, we start to see and hear more noise. We see the media start to talk in very grand terms, the buzz trickles throughout people, people online start pioneering their thoughts and why this time is way different and how to react. We’re pitched a whole new way to look and see things that we never even thought about but trust them they are the right way to do it. That includes investing.
In investing, during times of uncertainty we will see statements from people that normally go something like this, “ok we have never seen something like this before, so to do well investing you should do exactly this”. You fill in the blank as to what “this” is. Whether it's to invest in this penny stock, this sector, jump on this momentum trade, etc. My point is, the list goes on and on, and in reality doing one of these things adds additional unnecessary stress to an already stressful situation.
How does this add to the stress? Hypothetically, we take on this position or investment in order to “take advantage” of this time no one has ever seen before, but the person pitching that idea never tells us how/when to get off the train. When do we unwind the position, shift or invest into something else, if we lose money when should we cut losses? It’s always an answer of “oh this is happening you HAVE to do this” but never addresses once we do this, what should we do after. I’m speaking in generalities but I think we could all think of times when we’ve heard something like this.
There is never any strategy to these pitches and I think more often than not if we’re looking for or hear of examples of people making a ton of money on one investment or trade in a very short period of time there are two things that already happened. 1. We haven’t done the research we truly need to and 2. We aren’t getting the whole truthful story about all of the people who lost money reacting like this.
Even with traditional investing we can have periods where our portfolios are down, that is just the nature of being invested in the stock market. However, the major difference comes in having a well rounded approach and strategy to maintain composure during times of uncertainty.
There isn’t a magic bullet in changing times.
The simplest, most effective way to invest is also the one with the least amount of shine to it.
The simplest way to invest during times of uncertainty is investing in a diversified portfolio between growth, value, domestic, and international stocks, while also utilizing money market and bonds, in an appropriate allocation for your risk level. It is what has and will work best. Not chasing trades, trying to get a quick return, or investing in something we aren’t comfortable with.
Inside the balanced, appropriate model, the changes we make from time to time can react to changing times but we need to have the goals of looking long term instead as well as short term with our money. The key is always staying on track with our strategy and goals and not reacting to the current news of the day.
Ultimately, everyone loves seeing the scoreboard run up but no one likes seeing the scoreboard go the opposite way. Both happen, and both always will happen. But if we have a strategy that accounts for 3, 5, 10, 20+ years, then the changing world order in the short term doesn’t matter as much.