Limit Your Risk and Hold Cash During the Downturn
Limit Your Risk and Hold Cash During the Downturn By E.B. Tucker for Casey Research
Editor’s note: We know it’s tough to stay focused on your financial goals right now. The coronavirus pandemic grows every day, and the market whipsaws off of every headline about the outbreak.
But while we hope you’re taking steps to protect your health, it’s also important to safeguard your portfolio during these times. That’s why this week at the Dispatch, our experts at Casey Research are sharing their best advice for handling the volatility we’re seeing today… so that you’re well-equipped to withstand whatever this market throws at you next.
Today, we hear from Strategic Trader editor E.B. Tucker, who shares four important questions to ask yourself right now. They might not have easy answers… but answering them honestly will help you sleep easier at night – and prepare you to take advantage of the volatility ahead…
By E.B. Tucker, editor, Strategic Trader
When the 11-year bull market ended two weeks ago, it was the fastest swing from a bull market to a bear market in history.
It took many people by surprise. But not my readers.
Last August, we said that after 10 years of excitement, the bull market would eventually feel gravity.
That said, we knew it wasn’t a time to be pouring money into the broad stock market. Companies like Facebook, Amazon, and even Tesla were more than fully valued. That means they weren’t compelling investment opportunities.
Worse yet, those companies make up a large part of index funds favored by most American investors. When you rely on a handful of companies to lift the entire stock market, that’s a recipe for disaster.
Since reaching a high on February 12, the Dow Jones Industrial Average is off 32%. The S&P 500 is down 29% from its high on February 19.
It’s been brutal. But that doesn’t mean selling won’t continue.
We might see a “bear market rally.” But this violent surge higher is often a mirage. It can suck investors back in, giving the impression that all is well just before the market takes another leg down.
The stock market prices the future earning power of companies. Current prices suggest a tremendous economic slowdown dead ahead. The truth is, nobody knows when business will resume. That makes revenue and earnings forecasting a mere guess.
Plenty of investors, possibly including you, are pretty scared right now. That’s understandable.