INVESTMENT CONSULTANT, GARY GOLDBERG FINANCIAL SERVICES
Even with the recent gains enjoyed by equity markets, 2016 is off to a rough start for investors. Volatility has been extremely high, and until recently, it seemed like major markets were unlikely to ever put in a bottom. If you’re an investor, then no doubt some of your holdings have taken a pronounced hit.
This raises a fundamental question: What should you do with investments that have lost money? Should you wait out the weakness, double down on your thesis, or cut your losses entirely?
As you might imagine, the answer to that depends on the specifics of the security you’re worried about. If the fundamental reason you bought the stock has changed – let’s say you bought it for its dividend, but then the dividend was cut – then you should consider selling. Unless there is another, equally compelling reason to buy, it is time to move on. Remember that rebalancing is an important part of portfolio management, and that there’s no shame in admitting that an investment didn’t work out.
On the other hand, if your thesis remains intact – if the stock is falling because of a weak market rather than a company-specific issue – then panic selling is likely not the best solution. The best investors are the ones who can remove emotions from their decisions, and in an uncertain environment like this, the best course of action may be to wait things out. That’s also true for a stock’s dividend: reinvesting the yield is paramount to a long-term investor’s total return, so unless you need the cash to supplement a fixed income, you shouldn’t split the difference between holding and selling by no longer reinvesting the yield into the stock. When the market recovers, you’ll want as many shares as possible.
That’s also why you should consider adding to your positions in periods of weakness. If the fundamentals of your investment remain strong and you have an above-average cash position,this is likely to prove a smart move, especially if you have an extended investment timeline. Even if the stock takes a while to fully recover,you’ll be glad that you bought shares at a discount when it does.
If navigating volatile markets like this still seems complicated, you should consider Gary Goldberg Financial Services’ Trend Trac ETF strategy, a stable way to navigate the market’s long-term movements while staying nimble enough to adjust for any change in circumstance. This solution has both a unique approach to risk management and a low correlation to other Gary Goldberg strategies, meaning it will complement them in diversity. If you feel this approach may benefit you or you would like to learn more about it, please don’t hesitate to contact me at 845-368-2907.
Christopher Hanly is an investment consultant with Gary Goldberg Financial Services in Suffern and can be reached at (845) 368-2907 or firstname.lastname@example.org