Anyone who has been watching the news lately knows that the US stock market has been ticking up, up, up. It’s certainly good news if you’re invested properly. But even those whose investments are well allocated know that nothing good can go on indefinitely – especially when it pertains to the economy. (After all, the current economic expansion is the longest in US history).
That’s why it’s so important to have a plan for what to do when the party’s over – before it actually happens. As we’ve previously mentioned, it’s important to be prepared at all times because knowing exactly when the next recession will occur cannot be reliably predicted. And once a recession is in motion, you may not have the luxury of time to mull it over - either you’re prepared or are you aren’t.
Many people wait for a definitive signal to act – this means that it’s already clear to everyone else
Think of it like a baseball game…one that goes into extra innings and, unlike other sports, is not time-limited.
Everyone wants to stay until the very end, even though they know that the tradeoff for doing so probably means that getting out won’t be quick, easy, or cheap.
Why? Because when the fun part is over, everyone wants to leave all at the same time. People want to get as much as they can of the “upside,” which often means taking some of the downside with it as well.
In other words, if you choose to stay through the very end of the game, you’ll probably be stuck in a not-so-great position for awhile (along the lines of waiting to get on crowded public transit), or you can pay a ton of money to hopefully get out faster (like dealing with surge pricing from Uber). Either way, you’ve seen the game through to the end but now have to deal with the unpleasant process of getting out right along with everyone else in the stadium.
In contrast, there are some people that leave the baseball game in the eighth or ninth inning, knowing that their team is way ahead, with little prospect of that changing in the remaining portion of the game. While they may have left a bit behind, they make a quick and easy exit while avoiding the worst part.
Be prepared for what may come
The same can be said for investments as people seek to balance the competing priorities of remaining invested (capturing the “upside”) while staying prepared for a recession (avoiding the “downside”).
Too often, people take a blunt approach of “all or nothing”, when in reality the answer is much more nuanced and complex. That’s why it’s important to develop an investment strategy designed to perform through a variety of market conditions (not just up markets), and implement it before it’s clear the fun part is over.
With the market up as it has been lately, it’s an important time to talk with an advisor about your investment strategy to make sure you don’t get stuck in the post-game stampede. Contact Paceline today for a free consultation.
This blog was written by Jeremy Bohne, Principal & Founder of Paceline Wealth Management. Paceline is a fee-only investment advisor serving clients in the Boston area, and on a remote basis throughout the country. Paceline specializes in helping tech and biotech executives, physicians, and those seeking financial planning services.