This is an interesting time in the United States. We have a sitting president with no political experience leading the country in a time when our national debt is out of control, our infrastructure is crumbling, millions of people are not earning enough money and yet the stock market is at an all-time high. Oh, and did I mention the repeal of the Affordable Care Act and income tax reform are on the table as well? To put it bluntly, there is a lot of uncertainty surrounding the future of the United States.
Stock Market Uncertainty
There is also stock market uncertainty. Even though stocks are trading near all-time highs, there is concern. The post Great Recession rally is still going on even though the economy is not as healthy as it could be. Add in the rising interest rates happening this year and you have a lot of investors wondering what to do.
What to do in Times of Stock Market Uncertainty
If you follow the markets, you hear many so-called experts calling for a major pullback in the market. They talk about how stocks are overvalued and any day now the market will come crashing down.
On the one hand, they are correct. The market will fall. It always does. The stock market is cyclical after all. It rises for a period of time, then pulls back for a bit, then rises again. While we know it will decline, we don’t know by how much or how long it will last.
As an investor, what should you do? If you have a long time horizon, meaning you don’t need the money you have invested for a long time, say 10 years or more, it should be business as usual. Keep saving and investing. If you want, you could invest less now and keep more in cash so you can buy more when stocks do fall. But if you do this, remember to keep investing something now. Maybe put 50% of your usual investing contribution to work and put the other 50% into a savings account.
The reason you keep investing something is because we don’t know when the pullback will happen. Maybe it will happen tomorrow. Or maybe it won’t happen until next year. But maybe when they do fall, the price will be higher than it is today. The last thing you want to do is stop investing and miss out on more potential gains, so the best option is to keep investing all along the way.
What About the Uncertainty?
Stock market uncertainty will always be present. It never goes away. This is why you need to have a solid financial plan and diversify. This way you can invest with confidence, knowing you are doing what needs to be done to reach your goals without taking on too much risk.
Eventually, the uncertainty around tax reform and healthcare will go away, but something else will creep up and take its place. It could be terrorism or debt or even immigration. The point is, there will always be some uncertainty.
Just like the stock market works in cycles, so too does uncertainty. It will always be there. As long as you take the steps to set yourself up to handle stock market cycles and uncertainty, you will be able to invest successfully for the long term.
With so many experts out there calling for a major pullback, stock market uncertainty is high on every investors mind. The key is to keep things in perspective. There will always be uncertainty in the world and in the stock market. Therefore, you have to take the necessary steps to make sure you are prepared for most of what can come your way.
Create and stick to an investment plan and tune out the noise. When you do this, you realize that the worst case scenario that everyone is talking about probably won’t happen and you are better off just focusing on your finances and saving as much as you can so that you can make your goals a reality.