Is it Time to Buy? Thoughts on Investing in a Market Like This

Posted by Drew Creekmur, MSPFP on 9:00 AM on August 4, 2020

bear and bull signs

Markets are going CRAZY - should I invest?

Markets around the world - and here in the United States have been running like crazy since the S&P 500 bottomed on March 23rd. As a byproduct of this much appreciated bounce in the stock market, coupled with record low interest rates, we have received many questions about investing in everything from Gold to Bitcoin to Apple (AAPL) stock. This week we will share some guidance as you decide what you should invest in and when you should do it.

Thoughts for Investing In A Market Like This

1. Got Cash? Target Higher Yields

Right now many people have excess cash sitting in their bank accounts due in part to ongoing government stimulus and overall decreased spending from primarily living at home these past few months. With interest rates at record lows these funds are not efficiently working for these people and many are getting the itch to see some return from this extra cash. However, simply dumping these funds into the stock market is not always the right decision. First of all, stock markets have bounced aggressively and each family has being varying levels of financial need for funds in the near future.

In recent weeks our team has been actively reviewing the wider financial world to identify the top low risk, higher yield investments to recommend to our clients. From our research I can tell you that there are multiple areas for your cash reserves: High Interest Savings accounts, CD’s & Short Term Guaranteed Products that will help return a much better interest rate than a traditional bank account. If you have cash burning a hole in your pocket I would strongly encourage you to get in touch with our team to see what higher yield options best fit your financial goals.

2. Take Profits To Avoid Future Pain

When markets are ripping upward it is very tempting to hold onto your investment to try to squeeze out every penny of profit. This is a natural behavioral reaction for investors and one that has led many investors over the years to watch paper profits evaporate in an instant. There are few certainties in our economy and stock market. One way to protect against the uncertainty is taking some or all of a profit you have made over the past few months and setting aside those profits to be re-allocated in the near future.

With this thought in mind I would encourage you to evaluate your portfolio for positions you could take all or a portion of your recent profits. When you have done the right thing to allocate funds during a down market and have seen a massive bounce over the past few months it is wise to reward your good behavior by banking some, if not all, of your well earned profits.

3. Tempted To Hop On a Rocket Ship? Calculate Your Pain Tolerance First!

There have been several specific investments that have captured the imagination of investors due to their meteoric rise in recent months. Gold has taken off as investors seek an inflation and USD hedge. Apple stock has hit all-time highs and announced a very rare 4 for 1 stock split. Tesla stock is zooming for about a thousand different reasons.

When investments are soaring it can be easy to give in to emotion and hop on the rocket ship to greater returns. Before doing so, consider your pain tolerance if that rocket comes crashing back to earth.

Let’s use Apple as a specific case study on what I mean by "calculating your pain tolerance". Apple stock is at or trading very near an all-time high stock price and has appreciated by 100%+ over the last year alone. Due in part to this recent appreciation Apple announced a 4 for 1 stock split in the coming weeks. As an investor this means that you will receive 4 shares of stock for every 1 share that you own at the time of stock split. Sounds like a great deal right? Maybe. . . 

Prior to investing in Apple or any stock I recommend that my clients think through these questions:

  • Does Apple Have A Strong Future? What Risks Are on the Horizon?

If you can lay out rational reasons why a company like Apple has the potential to continue growing their business you have created a firm foundation for which to consider an investment.  On top of laying out a blue sky scenario for a company – can you also explain what could go wrong with the company in question?  Having a firm grip of what could wrong with any investment is key to understanding some of the risk & weathering any rough seas ahead.

  • Is this an Investment? Or is it a lottery ticket?

If you are buying an investment because you hope to cash in on a massive uptick in value, you are simply making an emotional decision to get lucky and cash in. Rather, if you can truly say, "This is an investment and I believe in this investment for the reasons listed above," then you are making a decision that you can live with no matter what happens.

  • What Is Your Plan if the Stock Drops by 20%?

Every time a client asks me to make an investment in holdings that are going crazy like Tesla or Gold I ask them the above question. I don’t ask the question to be a buzz kill, but to ensure that they have thought about the fact that investments do not always move up. Rather, in time will go down and up and stay flat – potentially all in one week.

If you haven’t thought through how you plan to react when your investment does in fact go down, you are setting yourself up to make an emotional investment decision.

Emotions and investing are like oil and water – try not to mix them for best results!

Remember, you are making investments to help yourself achieve a specific financial goal – such as buying a house, helping pay for your child’s education, or for your future retirement. In the months ahead as you consider buying, selling, or reallocating your investment portfolio take some time to ask yourself the questions above and review your financial goals first. If you are unsure of which direction to go with an investment decision feel free to reach out to our team of wealth advisors – we love chatting about anything and everything investment related!

Schedule A Meeting To Talk

Creekmur Wealth Advisors may be reached at 866-358-4441 or Info@Creekmurwealth.com 

 

Topics: Financial Planning, Investments, Planning, saving and investing

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