Investing in Uncertain Times

by John Quimjian | May 31, 2016

Whether you use a financial advisor or invest on your own, putting your money into investments is the easiest part. The harder part is watching the turbulence of the market place. The stock and bond markets are essentially an auction every day. That’s why some investors favor real estate since they feel it is not as volatile. If you had to sell your house on any given day, it would sell for different amounts depending on how many people come to the auction with a desire to buy. However, most people prefer to list the price they want and wait for a buyer to bid close to matching that amount. The same is true for stocks. In a down market, one never wants to be in a position where they have to sell but instead should have the luxury of being able to wait for a much better price.

The greatest secret to investing is simply staying invested and not trying to time the market. According to Ned Davis Research, over a 35-year period, the total return in S & P 500 stocks diminished from an annualized 11.7% return to a 4.3% return just by missing the 50 best days in the market. The goal is always to have enough cash and lower-risk investments to fund your next 3 to 5 years of financial need. It is not uncommon for lower-risk investments (investment grade bonds, utilities, consumer staple stocks) to actually go up when most stocks go down.

The recent crash in commodity prices (primarily oil) has been the major contributor to a decline in overall earnings for the stock market. The latest rebound in stocks can be largely traced to an increase in oil prices (still over 50% below 2014 highs). Despite the improvement (as of May 9th), US large companies are still down about 2% over the last year with small companies down 7% and foreign stocks down about 9%. Data from SigFig (an online investment tracking service published in USA Today 5/11/16) reported that active investors who turned their portfolio over 50 percent or more lost on average 18% in the last 6 months.

Although the stock market is up slightly on average from May to October (0.55% on average according to Bob Rothbort, a writer for Marketwatch), stocks usually drop intermittently during the summer months. Barring a recession, I expect these drops to be short lived. Fortunately, the median recession lasts just 9 months (Ben Carson, CFA). However, a recession will provide opportunity for investors with cash. Ben Carson, CFA showed through stock market data that investing during periods of unrest (including recessions) usually pays off well for investors with an average return of 79% over the following 5-year period.

So what does all this mean? If you are invested, stay invested during the turbulent summer months and know that down turns will not last (at least historically). If you have cash on the sidelines that you might want more than a 1-2% CD return, then the volatility should provide a good investment opportunity.

This letter represents the opinion of John D Quimjian as of May 11, 2016.

John Quimjian is an investment advisor representative with Physicians Wealth Solutions LLC, a registered investment advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed herein.

The above predictions represent the opinion of John Quimjian, registered investment advisor representative. Written May 31, 2016.