Investing in U.S. stock markets so far in 2016 has been a little bit like riding a roller coaster. In the dark. Through curtains of razor blades.
Investors have been cut to varying degrees, with the occasional, out-of-nowhere market spike here and there through the first 45 days of this year.
Financial planners and investment experts throughout the Sacramento area say stocks are not for the faint of heart, the short-term investor looking to make a quick score or a gambler trying to time the markets’ ups and downs. This last creature draws particular scorn from financial advisers, who consider market-guessing investors something akin to novice slot machine players.
Honestly, I try to ignore the daily reports. If you’re looking at that like it’s life and death every day, you’ll go crazy.
Jeff Murphy, 44, Roseville, who says about half of his investments are in stocks
“Predicting what the Dow and S&P 500 will do at a particular time, it’s silly,” said Kevin Young, founder and principal financial planner at Young Wealth Management, which has offices in Davis and Sacramento. “What we think it’s going to be is: We have no idea. And nobody else does either.”
The Dow Jones industrial average, long a benchmark of stock market performance, had an all-time closing high of 18,312.39 on May 19 last year. Since then, a long-predicted market correction has steadily pushed the Dow into the low 16,000s.
But that’s just part of the story. The Dow has been a bucking bronco ride for most of 2016.
Consider the closing numbers of the Dow’s 10 trading days between Jan. 27 and Tuesday last week: Jan. 27, down 222.77; Jan. 28, up 125.18; Jan. 29, up 396.66; Feb. 1, down 17.12, Feb. 2, down 295.64; Feb. 3, up 183.12; Feb. 4, up 79.92; Feb. 5, down 211.75; Feb. 8, down 177.92; Feb. 9, down 12.67.
I think a lot of the talking heads are just guessing and feel good if they get it right sometimes. I don’t listen to them, and I advise our clients not to listen to them.
Certified financial planner Kevin Young
After all those gyrations, the Dow closed Tuesday at 16,014.38, having lost a relatively small net of 152.99 dating back to Jan. 27. That amounted to an overall loss of less than 1 percent of the Dow’s overall value, although the Dow has dipped about 8.5 percent since Jan. 1.
“There’s a lot of uncertainty out there,” said Cynthia Meyers, a Sacramento-based certified financial planner, “The U.S. economy is growing at a moderate pace. There are concerns about China and oil, and even uncertainty about the presidential election. The stock market doesn’t like uncertainty.”
Most investments involve some level of risk, but Meyers believes it’s particularly perilous trying to predict what stock markets will do in the short term. Also, she said investors are routinely bombarded with sometimes wildly varying predictions about the economy and stock markets. She advocates a diversified investment portfolio and a long-term outlook for any stock market holdings.
“I think it can be a struggle for an individual investor because the media and analysts measure everything in the short term, and that’s typically not in sync in terms of investments, which typically have a long-term horizon,” she said. “Many investors are looking at making money over 10 or 20 years or more. It’s important to keep your focus.”
A small sampling of Sacramento-area investors who talked with The Bee appeared to be patient and market-savvy.
“Honestly, I try to ignore the daily reports,” explained Jeff Murphy, a 44-year-old Roseville resident who said about half of his investments are in stocks. “If you’re looking at that like it’s life and death every day, you’ll go crazy… Since the recession, stocks have been up and down a lot. But mostly up.”
Tina Burton, a Sacramento investor in her 50s, said “agonizing over the market on a given day or week or month is a waste of time. Do your homework, trust in it and stay in for the long haul. That will get you there.”
Young says financial planners devote time to protecting investors from themselves. Among couples, Young says his office asks husbands and wives specific questions about each of their long-term economic goals, even when it’s obvious one spouse is the primary investor. Like other financial planners, Young advises that clients have a diversified investment portfolio that can include stocks, bonds, commodities, cash and real estate.
“You want to know their financial goals and help them stick with it … and avoid anything like selling at the bottom and buying at the top.”
Some financial experts advise ignoring the Dow altogether, insisting that the Standard & Poor’s 500 index or the Nasdaq are better indicators of corporate performance and the U.S. economy.
Financial advisers note that recent stock market investors are routinely frustrated by events beyond their control. U.S. markets will sometimes tank based on a single speech given by a member of the Federal Reserve Board, a pessimistic prediction by a sole Wall Street analyst, or a careless word from a loose-lipped OPEC insider.
Adding to investor stress are almost daily analyst predictions of an imminent, catastrophic collapse of U.S. stock markets. Plenty of doom and gloom can be found online, no matter what stocks do on a given day.
Over the past couple of weeks, amid rising and falling stock market indexes, these headlines peppered the Web: “Dow poised to fall 6,000”; “Jim Cramer: the stock market is not working”; “Experts say another recession is looming”; “Smart investors abandoning stocks”; and “The head of trading at Morgan Stanley just confirmed Wall Street’s worst fear.”
“I think a lot of the talking heads are just guessing and feel good if they get it right sometimes,” said certified financial planner Young. “I don’t listen to them, and I advise our clients not to listen to them. We try to take the emotion out of it and explain any risk involved in simple terms.”
Keith Springer, founder and president of Springer Financial Advisors in Sacramento, said he’s been generally bullish on stocks in recent years, but he’s becoming increasingly concerned the market is “Fed-driven now.”
It’s true that much stock market analysis is based on the likelihood of the Federal Reserve raising interest rates. After months of mixed warnings from analysts, the Fed voted at its mid-December meeting to raise the central bank’s benchmark interest rate by a quarter of 1 percent to a range of 0.25 to 0.5 percent, a move generally reflecting confidence in the U.S. economy.
Springer was mystified, as were many stock market investors. “You raise rates when you have the threat of higher inflation. If anything, we have deflation now,” Springer said, noting the collapse in the prices of key commodities such as oil.
Springer said he believes the Fed raised rates “to see what happens” as opposed to responding to economic criteria, an alarming development for dedicated stock market investors. He says the Fed would be wise to squash speculation about further interest rate hikes.
He also notes that corporate earnings have cooled off, another reason to be less bullish on stocks.
As a result, Springer said he’s “being very defensive” on stocks right now, although he added that he evaluates portfolios and worldwide economic developments on a daily basis.
“I’m not looking at a 2008-style crash, but we’re staying on top of things,” Springer said. “We’re not afraid to go to cash. We’re trying to stay aggressive and do what’s best for (clients).”