As investors, we’re pretty happy to see 2018 come to an end. This has been a year marked by stock market volatility for numerous reasons including trade wars, rising interest rates, Brexit, etc. The big question is, “What’s in store for 2019 and what should I (as an investor) do about it? Here’s what some of the big-money folks have to say:
Schwab:
Last year, our Market Outlook theme was “it’s getting late,” which accurately forecast what happened in 2018: an expansion of the late-stage business cycle and an increasingly bumpy ride for stock markets. We’ve already seen declining growth rates in 2018 and heading into 2019 there are signs that an economic peak and potential recession may be coming. Rising interest rates, declining liquidity and sluggish global growth—with trade conflicts as an additional headwind—may weigh on economic growth and market performance in 2019. Investors should be prepared for increasing market volatility, and possibly even a bear market, in the coming year.
Vanguard:
As the global economy enters its tenth year of expansion following the global financial crisis, concerns are growing that a recession may be imminent. Although several factors will raise the risk of recession in 2019, a slowdown in growth – led by the United States and China – with periodic “growth scares” is the most likely outcome. In short, economic growth should shift down but not out. With slowing growth, disparate rates of inflation, and continued policy normalization, volatility in financial markets is likely to accelerate. Long term, our ten-year outlook for investment returns remains guarded.
J.P. Morgan Asset Management:
There are significant risks to the outlook for 2019. The Federal Reserve may tighten too much; profit margins may come under pressure sooner than anticipated; trade tensions may escalate or diminish; and geopolitical strife may force oil prices higher.
Goldman Sachs:
Investors should buy defensive sectors and stocks to ride out a tough year where fears of a recession increase. Goldman raised utilities sector to “overweight”.
Consider doing this, if…
- You’re in stocks now. If you’re in stocks and you don’t expect to need your money within the next five years, consider remaining invested. Remember, if you decide to sell, you must also (eventually) decide when to buy back. Making these two decisions, when to sell and when to buy, over time is so hard to do that I’ve actually never met anyone who could do it consistently. Trust that over time, the stock market will continue to rise. If you need reassurance, google “S&P 500 Index Historical Graph” and look at the trend line.
- You have a large sum of money. As we close out 2018, a lot of people have extra cash from year-end bonuses or other sources. Instead of investing it all at once or waiting to ‘time’ the market bottom, consider setting up a systematic investment program over six to twelve months. For example, you could invest twenty percent now and another twenty percent every two months until it’s all invested.
- You’re on a periodic investment program. Many people are automatically investing each month through a company 401k program or other similar program. This is a tremendous advantage during down stock markets since you’re buying more shares at the lower prices.
- The stock market takes a significant drop. Assuming you have an asset allocation strategy that includes stocks and bonds, use a significant stock market drop to rebalance your allocation. This means actually selling bonds and buying more stocks…which is often very counter-intuitive. For example, if your target allocation is 60% stocks and 40% bonds and stocks dropped 20%, you’d sell enough bonds and buy enough stocks to bring your allocation back to 60/40. As a sidebar, you’d do the same thing if stocks rose 20%…except now you’re selling stocks (taking profits) and buying bonds (storing up more ‘dry wood’).
On a personal level, I continue to favor blue-chip dividend-paying stocks of companies who have a history of raising dividends over time. This allows me to focus on rising cash flow rather than become distracted by short-term volatile stocks prices. Use the new year as an opportunity to revisit both your current investments as well as your long-term investment strategy. And yes, all the gyrations of our economy, international economies, and global stock markets can be quite confusing and, in some cases, debilitating. If you need help, don’t hesitate to seek guidance from an investment professional. Look for someone with a minimum of ten years’ experience…which insures that he or she has lived through both bull and bear markets.