Recently, I was emailing back and forth with a new client. At the end of one email, he observed, “the market sure is moody lately.”
Out of all the technical jargon the financial industry pushes out, I thought “moody” was a perfect word to capture what we’re all feeling about the market.
It’s hard to watch the market go down.
It’s hard to watch your money go down.
And to complicate it all, there are just so many indices and charts and graphs flying around on our newsfeeds.
Where should we be looking to better understand what to follow in the market?
On my phone, I have the default stock indexes, because, well, frankly—I don’t know how to change it. I am sure my kids could figure it out, since they change my home screen photo weekly.
This default view shows me the Dow Jones, NASDAQ, and the S&P 500 on my home screen. I look at them twice a day: once in the morning when the market has just started, then again after 1 p.m. to see where the market ended for the day.
Now, why do I do this?
As an advisor, the S&P 500 is a helpful tool that gives me the quickest overview of what’s happening with my clients and personal accounts. It’s my job to know what’s going on with the market daily.
But what if you’re not an advisor?
What if you’re in it for the long term and don’t have the time or desire to look at the markets every day?
(First off, I’d tell you that’s the right mentality! Over time, the market is going to go up and down, and the goal is to stay invested so we can take advantage of those up days over time. This is known as compounding returns.)
My answer, as you’ve probably guessed by now, is “it depends,” because everybody’s situation is unique. But in general:
You should follow the indices that best represent your investments.
Assuming your investments are in your employer 401k plan or other retirement-type vehicles, first look at the stock portion of your investments. What is the percentage of stocks in your portfolio? Then look at the bond portion and see what the percentage is. If you’re in your 30s or 40s, you probably have about 80% stocks in your portfolio.
Now it’s time to do some quick math:
Let’s look at the S&P 500 again. This is the index I’d recommend looking at if you just want a benchmark of how your investments are doing.
At the end of the day, let’s say you take a quick look at the S&P 500 and it had a return of 3% for the day. Here’s the math:
3% (return of S&P 500) x 80 (stock % of portfolio) = about 2.4% increase in your overall portfolio
So really, you could throw the math out the window and just say you increased just a little bit less than the S&P. This is very general for the sake of explanation, but stay tuned for the next newsletter when I dig more into the Mosaic investment philosophy.
By checking your stock-to-bond ratio, you can figure out how your portfolio is fluctuating with the overall market.
When you understand where you’re at, then you have an action plan of what to do when all those graphs and indexes come flying at you. You can narrow in on what to pay attention to and what can continue to just fly by in your quest for the long-term.
I know it’s messy and overwhelming at times these days. I’d love to help you navigate through it all. Reply to this email if you have any questions, want to talk about your current investments, or just want suggestions on how to navigate the “moody market.”
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The opinions expressed herein are those of Anna Nelson and are subject to change without notice. This material is not financial advice or an offer to sell any product. Forward-looking statements cannot be guaranteed. This document may contain certain information that constitutes “forward-looking statements” which can be identified by the use of forward-looking terminology such as “may,” “expect,” “will,” “hope,” “forecast,” “intend,” “target,” “believe,” and/or comparable terminology. No assurance, representation, or warranty is made by any person that any of Anna Nelson assumptions, expectations, objectives, and/or goals will be achieved. Nothing contained in this document may be relied upon as a guarantee, promise, assurance, or representation as to the future. Anna Nelson is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training.
