How to Navigate Markets in Q4

Matthew Unger |

It has been an interesting last few weeks in markets, and certainly a challenge to know where you're going as an investor during times of uncertainty. Let's recap: Oil went on a run after Iran attacked Saudi Arabia, the US Federal Reserve cut interest rates again and was called “hawkish” by financial pundits for whatever reason, and the ECB cut interest rates by 10bps to -0.5%, meaning banks are now paying to hold excess reserves. Phew, that was a long run-on sentence! Oh, and as always, people are still scared of the US-China tariffs. But how does this all impact you? Or does it impact you?


First off, what the ECB is doing is a failed attempt at stimulating the broader European Economy by misuse of interest rates instead of fixing failed policy and regulation. Trying to fix the European economy by these means is like trying to shove a square peg into a round hole.


Second of all, as we continue to climb the wall of worry, shall we not forget the North Korea Nuclear Missile tests and war games with Russia that also hijacked news headlines last year? My how easily we forget. This is partially how the wall of worry is; a wall we climb throughout the bull market, investors are distracted by the new scary headline and forget past headlines, until investors have “nothing more to worry about” and the market fails to keep up with their lofty expectations.


If investor sentiment is any gauge of where we are on this wall of worry, one could argue we aren’t even optimistic. The AAII Investor Sentiment Survey ending 9/18/2019 only 35.3% of Investors are bullish. Would you call that optimistic? Remember, as the great Sir John Templeton once said, “Bull markets are born on pessimism, grown on skepticism, mature on optimism, and die on euphoria,” he said. “The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.”


So how does one know when the best time is to buy and the best time is to sell? Well, one should be focused on tools that can help them cope through tough times and avoid selling during good times well before the bull market ends. One of those tools is creating a financial plan, and adhering to it through thick and thin. So how does one create a financial plan?


Creating a financial plan may seem overwhelming to those that have never completed one, but taking the first steps to creating a plan is much easier than you may think. Even if you plan on hiring a professional financial planner down the road, creating a rudimentary plan can go a long way towards sharpening your goals, making your meeting with a financial planner much more useful when it does occur.


If you’re not sure where to start, just follow these steps:


Take stock of your current income and expenses. While doing so, be sure to categorize your expenses, so you’ll be able to see exactly where your money is going. Most financial institutions make this process easy by providing details on all transactions. Be sure to include credit cards in this first step as well. This should be done for at least a month, preferably two, to give you a clear idea on just where your money is going. On a side note, this process can be an eye opener, so be prepared.


Create some basic financial goals. They can be as simple as saving to buy a house, or wanting to retire at age 62 instead of 65. Try to be as specific as possible, and start doing everything you can to realize those goals.


Be sure your plan is fluid. A financial plan is a living document, and should be updated as your circumstances change. Events like marriage, divorce, a job change, of the birth of a child can have significant impact on your financial goals, and your ability to attain those goals. Make sure your plan changes accordingly.


Use a Monte Carlo simulation that will help you determine your plan’s probability of success. This may be one of the most important parts of the process as this statistical analysis helps take the guess work out of whether this plan will work. Not sure of where to start? Our retirement calculators are a great way to start the process.


As your plan and your goals expand, seriously consider consulting with a fiduciary financial advisor who can help you with your plan, and don’t ever be afraid to get a second opinion (or even third opinion) to make the best determination for you.


*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets. This material was developed and produced by Focus Asset Management with Advisor Websites to provide information on a topic that may be of interest. Copyright 2023 Focus Asset Management and Advisor Websites.