You’ve heard some rumblings that we’re in danger of falling into a recession. Comments on this issue are coming from legitimate financial professionals. These comments stem for the most part due to the current trade war the U.S. initiated against most of the rest of the world. And first quarter numbers just released show the economy shrinking, not growing.
There’s reason to believe we’re headed for an economic slowdown. The tariff on Chinese goods (with some exceptions) as I write this is 145 percent. China, in retaliation, has imposed a 125 percent tariff on U.S. goods. This has significantly reduced trade between the two countries. The number of containers arriving on the west coast is down by some estimates, as much as 40 percent! Retail executives from Walmart, Target, and Home Depot recently warned Trump to expect significant price increases and empty shelves shortly.
So, given all that, what to do with my investments? You might be tempted to run for cover. In other words, just sell off my stock investments and convert over to cash until all this blows over. Sounds easy enough, right? Wrong! DON’T DO IT!. Let me explain.
It’s true that stocks may suffer a decline in a recession. But we’ve already seen a significant decline in the markets. The Dow went over 45,000 in December. It’s currently at around 41,000, a decline of roughly 10 percent. The Nasdaq decline is even worse, off roughly 15 percent from its recent high. If you bail out now, you’re selling at significant discounts.
But it could go even lower, you argue. Yep, it could. But if you cash out, you then have the issue of when to get back in. Recently, Trump put a 90-day pause on implementing tariffs. The market soared, with the Dow up over 2,000 points that day. If you were sitting on the sidelines in cash, you didn’t participate in that gain. To follow through on that, the next day the markets were down, giving back much of the previous day’s gain. But research shows that missing only a few of the big market days can have a significant impact on long run returns.
A couple of things to remember during this volatile period: first, market gains, as well as drops, often occur rapidly. You’ve got to be out on the playing field to score, not sitting on the bench. Second, after market corrections occur, markets historically go on to higher levels 100 percent of the time. Those are excellent odds. Finally, make sure your allocation to stocks is consistent with your ability to tolerate market risk. If you can’t sleep over worrying about your stocks, maybe you should shift some funds over to bonds. But don’t completely abandon the stock market; it’s your best hedge against inflation over time. And the experts are telling us to expect higher prices!
