Market volatility and timing new investments

Doug Horn

If you felt like your investment portfolio has been spending too much time at Coney Island, New York, most likely you are not alone. During the last three weeks of trading ending Friday the 23rd, there were 11 days where the Dow Jones Industrial 30 index ranged more than 100 points during the day. Of those 11 days, there were five days where the difference between the high and low for the day was more than 200 points. It is not surprising many investors are throwing in the towel or very nervous as to the ultimate direction of the market.

It is likely the volatility will continue for some time. Since the U.S. economy is attempting to recover from the recession, there will be many bumps in the road until the momentum takes over. These bumps will come in many forms, some of which we have already experienced. Disappointing earnings from one of the market leaders may cause the markets to question the recovery. Almost any instance worldwide that could strain the recovery will cause the markets to move lower. This could be new skirmishes breaking out in an oil producing nation or a hurricane in the Gulf of Mexico which may lead to prolonged shutdowns of producing wells. Until the exact impact if any to the world’s or to our U.S. economy is known, news of this type of event may cause the markets to experience increased volatility.

Additionally in recent weeks and months, Congress and the current Administration have released many new laws, regulations, and reforms. Until these are fully understood, the markets may react with continued high volatility in the daily values.

Part of the recent downturn may have been spurred by news, but it was also the long awaited correction. Since March 9, 2009, the S&P 500 index has gained 540.75 points, representing a 79.93 percent increase in value. During the impressive run-up in the index, there had been very few periods where the index had sold off, even if only for a few days. On April 23rd, the market reached its recent peak and a correction began. While corrections are never pleasant, they are necessary. During corrections, the question always arises whether the current downward move is a short term correction or a trend reversal. After gaining nearly 80 percent, some may believe the market is once again heading lower. Many forecasters are even predicting a double-dip recession. While this recovery is not strong, it is my belief it is not going backward either.

For my clients, I have a saying, “I do not time the markets, but timing is everything.” Those investors lucky enough to have come into additional cash to invest in February or March of 2009 benefited tremendously from the markets’ stellar recovery. However, those retiring in September or October of 2007 have seen their investment values decimated by the recession and market declines. During times like either of these, it is difficult to experience results that are opposite of the markets’ overall direction. There is no crystal ball providing the answers. Despite market corrections, equities typically provide the greatest total return when compared to bonds, cash, or real estate. But for those with little tolerance for losses and investors who cannot afford significant losses, the use of equities should be limited and monitored closely. Even without the crystal ball, there are well-educated opinions, guesses, and even hunches from professionals who may improve the gains during up markets and reduce or limit losses during downturns.

As to the best time to invest, generally it is always sooner rather than later. The more time an investor has before the funds are needed for other purposes, the more likely they will show gains from their efforts.For assistance with insurance, estate planning, and investment management contact me at Quality Financial Concepts or one of the other Certified Financial Planners in our area. To continue a quest for education, you can also view our learning center on our website, www.goqfc.com.

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