Ignore the hype.
On the back of a 22% gain for the S&P 500 in 2017 plus a rather positive start to the year in January, the stock market’s decline, or “correction,” over the past week has undoubtedly upended many investors’ bullish expectations, even if only temporarily.
If you’re an elder millennial such as myself, we’ve watched US stocks advance for our entire post-college years, nearly 10 years. As such, and broadly speaking, US stocks are by no means on a clearance sale. At best, they’re currently trading similarly to Nike’s Air Yeezys on Ebay (i.e. for a significantly appreciated premium) – even after the recent decline. If you priced a pair of Kanye’s original sneakers, adjectives that may come to mind are ‘f****** ridiculous,’ ‘crazy expensive,’ etc. I share these same sentiments about the US stock market. Yet, market pundits and Wall Street analysts are hyping you to “buy the dip.” I couldn’t disagree more vehemently as the degree of speculation, indexation, and FOMO in today’s US stock market becomes more pervasive.
You may be wondering, “Well, what the hell do I do with my money then?” Very generally speaking, I suggest the following:
- Save as much in retirement accounts as feasibly possible (e.g. 401ks and IRAs)
- Build up more cash reserves both inside and outside of your retirement accounts for a rainy day (i.e. stock market “crash”)
“Be greedy when others are fearful, be fearful when others are greedy.”
- Warren Buffett
- Become more selective in buying and holding individual US stocks by maintaining a value-orientation (i.e. buy low and hold higher versus buying high and hoping to sell higher)
- Allocate increasingly more of your investment dollars in international stock markets, particularly in developed west-European countries (think of the places you’re planning to visit soon; e.g. Italy, Spain, France, U.K.)
- Consider and potentially participate in one-off alternative investment opportunities sourced from close and trusted friends, family, and acquaintances given the lack of stock market correlation (e.g., family-held businesses, angel investments, real estate)
In summation, I’m not recommending you to run for the hills and sell all your US stock exposure. I’m recommending you to acknowledge the current environment and to be cautious by buttressing your overall investment portfolio with some ready cash and uncorrelated assets.
Jarrett E. Cohen
Jarrett is Principal & Chief Investment Officer of JECohen & Co., a New Orleans-based investment management firm.