Don’t Panic!

It’s already been an eventful year for the markets, but waking up this morning I must say I did a double take at the stocks app on my phone. The S&P 500 Index was down 3.3% overnight, with the fall being led by the popular tech stocks. The NASDAQ was down 4.4%.

The stock app also offered up this article, which  is a quick but worthwhile read at a time like this. There’s some simple advice in here for individual investors:

• Don’t panic.
• Wait a few days for things to settle.
• Make sure you know yourself and don’t be aggressive with money you are planning to spend in the near future.

Makes sense right? While this may not necessarily be the start of the grand reckoning that many are expecting, there are going to be more days like this, so it’s best to be prepared.

Here are a few things I would add:

• Diversify – should you really be 100% in stocks? Are you prepared to ride out the storm for as long as it takes? A well diversified asset allocation will not capture all of the upside in the good times, but it also won’t absorb all of the downside when things go south.
• Don’t try to time the market – the pros get this wrong, so what chance do we have? You are right to be buying after a significant drop in prices, but you don’t have to do it all at once. Add a little and then wait a few days.
• Knowing yourself means knowing your base currency, your risk profile and your time horizon.
• There is more to come -The Cboe Volatility Index rose past 20 for the first time since April. The US Federal Reserve is walking a tightrope trying to return rates to normal in order to avoid the economy overheating, whilst trying not to upset the stock market. The Bank of Japan can not even hint at “tapering” or reducing bond purchases without setting off an avalanche.

It’s likely to be a rough day for Asian stocks today. Be prepared, stick to your long term plan and don’t panic!

Update to this post, 12th October 2018: Ray Dalio says it better than me in this 5 minute interview, but the message is the same – stick to strategic asset allocation and don’t try to trade and time markets.

Disclaimer: This should go without saying, but the information contained in this blog is not investment advice, or an incentive to invest, and should not be considered as such. This is for information only.