Market Might be At the Peak – Should I Stick with My Investment Strategy?
By now you’ve read or heard that the market might have peaked. You heard about rising interest rates, inflation fears, oil price volatility and more reasons why we might be in for a market correction – a 10% or more drop in the stock market. And, as of today (October 9, 2018) the S&P/TSX Index is 600 points off its peak that was reached just last month. So, what is a regular Canadian Investor to do if you had planned to make a investment in equities as part of your long term strategy? Is it time to sell and put your money into cash and fixed income investments (Bonds, GICs)? Perhaps we should wait and see what happens with the market before putting more money into equities. Or maybe you just proceed with our investment according to plan.
On our site, we’ve always advised ordinary investors that they should not try to “time the market”. In other words, avoid trying to figure out when the market has peaked or hit its bottom. There are professionals that spend 100% of their time trying to figure this out and they are often wrong.
Tony Robbins reprinted a powerful picture that shows how many famous pundits made predictions of crashes just before strong market upswings. There are lots of examples of strong market predictions just before crashes.
The point is that even the experts have a very difficult time timing the market. Some have some success in predicting general market trends (up or down) but there has never been anyone who can consistently predict the timing of market ups and downs. Or, if there has been anyone, they’ve quietly made their $1 Billion dollars and are now happy in retirement in Tahiti. They are not bothering to tell you. During the dot.com run up in the market, we all talked about how the bull market could not be sustained and that there would be a crash. We were right, there was a crash, but we started talking about the crash in the late 90’s – many years before it actually happened.
So, develop your strategy and stick with it. If you have a investment strategy that calls for buying equities this quarter, stick with that strategy. To give you even more confidence that this is the best approach, Robbins also reprinted another interesting study from Schwab. They looked at investing $2,000 a year starting in 1993, either in stocks or Treasury Bills (Fixed Income Government Bonds). For the stocks, they looked at two scenarios – Perfect Timing, where you always picked the best time to invest in the year; and Bad Timing, where you always picked the worst time to invest. As you can see, putting money in the stock market always beat staying in Treasury Bills, even if you were terrible at timing the market.
Find your strategy and execute your strategy - and leave the timing to the professionals. Still worried? Talk to an Advisor.