Mom said there would be days like this. In case you missed it, the high-flying technology names from the last 90 days, have rolled over. Though all stocks aren’t down, the indices are off almost 10% from the recent highs.
This year has been about picking the right stocks rather than the index. That is where the term “stock pickers market” is derived. A good question is: if not all stocks are down, how can the indices fall so swiftly? Welcome to market capitalization challenges.
As a good reminder of what happened previously during a similar time, let us revisit the last quarter of 2018. Heading into September, the market appeared to be healthy based on the performance of the broad market. However, it was not a healthy market. A few major mega caps were having a stellar year, but most companies had relatively flat to negative returns.
As the mega names rolled over, the year ended ugly with the worst December since the Great Depression era. Then in January, with support of the Federal Reserve comments, suddenly became the best January since 1987! The market endured some of the most violent volatility witnessed in the last 30 years. Then we entered the world of a Pandemic.
This is a market where you must pick and choose your battles. There are great companies and great profits on both sides of the barbell. There are companies that will do well when we “re-open” and companies who will do well as we continue to distance ourselves. However, be prepared for volatility.
A good part of owning an individual stock (there are many good reasons over owning a fund or index) is being able to understand the company better. Beware that the confidence that comes from familiarity will allow you to tolerate more volatility and cause you to hold on to things you should have sold. Be careful in thinking you know everything about a company.
As volatility continues, there are a few things to consider based on your company plan at work. Depending on your age and other circumstances Covid special distribution opportunities and in-service non-hardship distributions might make sense for you.
The government created unprecedented distribution strategies for those impacted by the virus. If your income has been distributed, this might be a good year to take advantage of the opportunities available.
If you believe that we are in a “stock pickers market,” and your plan allows for in service non-hardship distributions, you could roll money out of your plan and into an IRA where you can pick the specific stocks you want to buy. Make certain, if you take this path, that you use a direct transfer of the assets to your IRA. You don’t want the distribution sent to you or our account. Again, be careful, work with a qualified professional and don’t take more risk than you understand. The market can move quickly as the last two years has demonstrated.
Disclaimer: Joseph Clark is a Certified Financial Planner™ and the Managing Partner of Financial Enhancement Group, LLC an SEC Registered Investment Advisor. He is the host of “Consider This” found on WIBC Saturday mornings from 6-7a.m. as well as three other Indiana-based radio stations. Joe has served as an Adjunct Assistant Professor at Purdue University where he taught the capstone course for a degree in Financial Counseling and Planning. Financial Enhancement Group is an SEC Registered Investment Advisor. Securities offered through World Equity Group, Inc., Member FINRA/SIPC, and a Registered Investment Advisor. Investment Advisory services offered through Financial Enhancement Group (FEG) or World Equity Group. FEG is not owned or controlled by World Equity Group. Joseph Clark and World Equity Group, Inc. do not provide tax or legal advice. For tax advice consult with a qualified tax professional. For legal advice consult with an attorney.