Mark B. from Wilmington, NC asks: Good Morning Mitch. With all of the selling pressure that’s going on in the stock market lately, would you say now is a good time to buy? Or should I wait a little longer until things with Ukraine, inflation, etc. are better resolved? Thank you.
Thanks for writing. The stock market has been choppy in 2022 so far, and I’ve written before that we should reasonably expect volatility to continue. Not only is volatility normal and common in equity investing, but it is also the case that corrections tend to last anywhere from a few weeks to a few months. We’re very much in that zone at the moment.
Long-time readers of mine know I do not advocate for market timing. If the cash you have on the sidelines is meant for the long-term, i.e., to fund retirement or cash flow needs well into the future (10+ years), then I would say now is a fine time to invest. The U.S. stock market has retreated from highs, the growth outlook is stronger than many appreciate (in my view), and I see corporations growing earnings at a better-than-expected clip. I think it’s a good time to own stocks.1
Where Should You Invest Your Retirement During This Time?
With so much market volatility, it’s harder than ever to produce current income from investments. For a stable and predictable source of income in retirement, we recommend a portfolio invested in stocks with a strong track record of dividends and dividend growth.
To learn more about how to use dividend-paying stocks in your strategy to potentially generate cash flow for retirement, check out our guide “Retirement’s Uphill Battle: Generating Income in a Low-Interest Rate Environment.”
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There is another part of your question I’d like to address for whoever is reading – the idea that an investor should ‘wait’ until the environment is a bit calmer before investing. I see a fundamental problem with that approach, which is that the stock market does not wait for good news to rally. The opposite tends to be true more often than not, whereby the stock market outperforms when the “wall of worry” grows. You might see this framed in the financial news as the stock market is ‘disconnected from the economy,’ but that characterization tends to miss an important point. The stock market is not necessarily a reflection of the current economic climate and sentiment – it is a reflection of how the economy and corporations will look 6 to 12 months from now.
So, when you look out and see high inflation, escalations in the war in Ukraine, the Fed raising the benchmark fed funds rate by 50 basis points, etc., it is important to remember that the stock market has already priced in all of these factors. If it is widely known and discussed in the news, it does not have much pricing power in the stock market. Investors need to constantly look out several months into the future to ascertain where the economy and corporate earnings are going, not where they have already been.
One final note I will offer is that investors can use market volatility as an opportunity to review your portfolio and asset allocation, to ensure your investments are aligned with your long-term objectives. If your portfolio is allocated in line with your goals, then remember that short-term fluctuations in the market should not change your long-term strategy. That’s just the market being the market.
I also recommend the dividend strategy, like the one we manage here at Zacks Investment Management, a percentage allocated to fixed income, preferred stocks, and other categories like small- and mid-cap stocks. The point is to have many parts of the portfolio working towards your long-term goals, with a diversified approach also allowing you to potentially reduce risk (versus a dividend-only approach).
To learn more about how to use dividend-paying stocks in your strategy, I recommend checking out our guide “Retirement’s Uphill Battle: Generating Income in a Low-Interest Rate Environment.”3
This guide will help you learn more about generating cash flow and income with this strategy. Topics covered include:
If you have $500,000+ to invest, get our free guide by clicking on the link below.