Market Update & Timing the Market

Now we need to talk about something. I'm recording this on August 2nd. It's going to run. It's not going to run for 24 days, so three and a half weeks. And so this might be totally out of date what I'm about to say by then, but I think it's a good example anyway. The big news this morning, bouncing around all the websites, you know, the Dow's dropped like a thousand points in the last couple of days because the jobs report came in less than people thought it was going to be. Now everyone's like, oh, recession is going to happen. This is terrible. The Fed waited too long to cut interest rates. And maybe that's true, maybe it's not, I don't know. But the market's pricing in. I think a majority of people think the Fed's going to cut rates by half a percent rather than just a quarter percent at their next meeting because of this jobs report. The Fed's got this mandate to control inflation and to try to get as high of employment as you can get. And that dual mandate is obviously in conflict. And they're always constantly trying to thread the needle between those two things. But maybe they did wait too long. But the consequences of this jobs report are that bonds have gone up dramatically in value and stocks have gone down dramatically in value. And this is kind of classic market behavior, right? When the economy is supposed to do surprisingly well, stocks go up, bonds go down. When the market does surprisingly badly, vice versa. But as I look at what's been going on in the markets, I look at, you know, I just put in these common ETFs to get a quick look at the markets into Google, like vti, right? The Vanguard Total Stock Market Index Fund. I put that in. I look at a chart for the last month or so, and I see that it peaked at $279 a share today. As I read this, it is $262 a share. What's that down about 5%, 5% in the last couple of weeks. So if you used to be, you know, had all your money in US Stocks and it used to have a million dollars, you now have $950,000. You've lost 50 grand. And so that's a very real loss. These people that say it's not a loss until you sell, it's bogus. It's a loss, right? Just like it was a gain a few days ago. If I look at bonds, I see that their price nadered back in April. The Total Bond Market Index Fund nadered at about $70 a share, 70 and a half dollars a share. And today it's up to $74 a share, which is the highest it's been, oh, it looks like since about 2022 when they started cutting interest rates. And so stocks down, bonds up. This happens. This is what markets do. What should you do with that information? Nothing. You should do nothing with it, right? You're not trying to time the markets. This is not how you make money. It's all about time in the market, not timing the market. I generally only look at my investments probably on average every couple of months when I'm trying to look to see where new money needs to be invested. If I wasn't putting new money in, I don't know, I might only look twice a year. That's how long term investing works. I always find it interesting. I have people write me up that send me emails or whatever about their investing technique. And frequently it's this massively time consuming thing. I got them sending me articles they read every day on their favorite asset class. And I'm like, you're reading articles every day on your favorite asset class. This is like way too much time. I am not interested in doing that. If you're spending hours a day on your investing, you got to ask yourself, is that really what you want to spend your life doing? You only get one life, so it's okay to have a set it and forget it portfolio and look at it every few weeks or every few months or whatever. That's perfectly fine. It's a totally reasonable way to invest. And the beautiful thing about it is it helps prevent a lot of behavioral errors. People who watch the markets too often are much more likely to do damage than good. I think it was Warren Buffett that said the best attitude toward your investments is benign neglect bordering on sloth. Being lazy in this thing is counterintuitively beneficial to your money. Activity is not rewarded when it comes to investing. Patience is rewarded. A long term mindset is rewarded. Your biggest enemy is you. So watch out for that person in the mirror. They're the person most likely to trash your investing plan. Be careful when markets become volatile, when things seem to change, and don't do anything crazy. Now, remember how bonds work too, right? Everyone's all that owns bonds. Oh, I'm excited. My bonds did really good this month. They're up 3.6% or whatever. That's not necessarily a good thing. Long term, you actually want all else being equal, inflation being equal, all else being equal, you actually want higher interest rates. If you're a bond investor now, when rates go up, you're behind for a period of time. That period of time is equal to the duration of your bonds, your bond fund or whatever. So it's got a duration of four years. Interest rates go up, you're behind for four years, and after that you're ahead any period of time longer than the duration. So that's a good thing. Higher interest rates are a good thing for bond investors when they go down. Yes, your bonds are now worth more, but you're also reinvesting money at lower yields and you're getting a lower yield on the bonds that you do own. So you can have more principal and less return, or you can have less principal and more return. That's really the option. So don't get too excited or too depressed when things go up and down. It works out for you either way. Just keep stuffing those investment accounts full and you will be surprised how much wealth you can accumulate in not that long of a time period. Focus on your own good investing behavior, your good financial behavior. Work hard, have a reasonable investing plan and stick with it and you'll reach your financial goals and you'll win this game. Remember, the game is you against your goals. It's not you against anybody else.

The hosts of the White Coat Investor are not licensed accountants, attorneys, or financial advisors. This podcast is for your entertainment and information only. It should not be considered professional or personalized financial advice. You should consult the appropriate professional for specific advice relating to your situation.