“The sky is falling,” clucked the little chicken in the children’s storybook after being beaned by a falling acorn. Despite the warnings, all ended well as most children’s stories do. And today after many speeches (including my sons’ favorite from Dr. Seuss’s “Green Eggs and Ham”), the much-ballyhooed “end of the world” was welcomed with a yawn as most of us went about our day.
Walking Off the Cliff Good for Investors
So, here we are again. We’ve walked off the proverbial cliff … again. In fact, we’ve walked off this plank seventeen times before since 1976. And five of those shutdowns occurred within three months of each other. (Talk about dysfunctional government). The last time this happened was seventeen years ago under another Democratic president. And how do investors feel about this? Well, so far the market is up. And historically, the stock market has been up about 11% within twelve months of a shutdown compared to an average return of 9% for the same time period.
Bloomberg has reported that government shutdown’s have had a positive impact on investor bottom lines. And while we never like to say, “this time it’s different” because it usually isn’t, there is the reality that we now have to face another “wall of worry.” The last seventeen times this happened we never had to deal with a debt default in the same month. That is certainly a possibility and is it’s going to be the next speed bump to an otherwise stellar year for the markets.
The markets – meaning investors like you and me – don’t like uncertainty. That’s for sure. And the lead up to this political deadline has been hard on the markets with eight down days in a row. But the market opened up and continues in positive territory. Will this continue indefinitely? While my crystal ball isn’t that good I’m pretty certain that a straight line up is not going to happen forever.
What I’m also certain about is that for investors without a plan in place for approaching the markets they are more likely than not to be ruled by their “gut” and make an emotional decision that will more often than not be the wrong one. That has not been good for investors in general and for those who abandoned the markets in the depths of the blackness caused by the Great Recession they are still trying to climb back to break even having missed the upswing that followed when the market’s digested and got used to the “new normal” of 2008 through 2010.
Sure, the government has “shut down” but essential services continue and there’s wisdom in the saying that “this too shall pass.” More importantly, the fundamentals that investors and analysts look at have not changed simply because federal parks and offices are closed today.
More than 300 publicly-traded corporations are expected to report earnings beginning in a few weeks and analysts expect that these numbers will be positive for many of them. So using this opportunity to add to quality positions is a good thing.
Control What You Can
Control what you can and start with keeping your emotions in check when investing. So while “dollar cost averaging” will buy you stocks, bonds or mutual funds at a discount compared to other days, what’s better is if you have a plan in place on how, where and what to invest. Having this discipline – or using an investment adviser who can do this for you – will prevent a lot of needless pain and anxiety with your investments and your longer-term financial plans.