Investors in today’s volatile market would do well to heed the advice parents give to their children when a minor brouhaha erupts with their friends: Stay clear of the drama. Mind your own business. Worry about yourself. They will come around.
Of course, one can argue that the market’s performance last week was more than a little schoolyard tiff. In fact, U.S. stocks saw their worst opening week of a new year in history. All major indices were down. But instead of worrying about how much stocks declined, investors should be asking, “Have my goals changed?” That is, worry about yourself. The markets will come around. They always have.
Of course, that is easier said than done, especially when “news” programs seemingly delight in reporting the panic in China where the markets swooned so dramatically that trading was shut down four times last week. And while that move did little to curtail the panic in China, it did seem to ignite fear in the rest of the world. On the first trading day of the New Year, U.S. stocks fell 4.9%, the biggest drop ever.
Nobody knows what this week will bring. However, there was some good news on Friday. According to the Labor Department, the U.S. created 292,000 new jobs in December. Nevertheless, the strong headline number wasn’t strong enough to give stocks the big boost they needed. Yes, the jobs data was positive, but the muted wage growth missed economists’ expectations. So, the China selloff remained the story of the week, and of the New Year.
Will the gyrations in China continue? Who knows? If you had a crystal ball, you would be managing your portfolio from your private island. So, while you don’t know for sure what the markets have in store for us in 2016, you can be sure of your own goals. So concentrate on what you know and what you control. You know what your financial goals are, and your goals will help define your investment strategy. You can control when and how much you invest, but I have always argued there is only one best time to invest—when you have excess cash. And, you can choose to work with a trusted advisor who will stop you from making emotional financial decisions and pulling out of the market based on what is going on in China.
Your decisions should be based on your goals, your time horizon, and your tolerance for risk. None of these are made in China.