Two months ago, due to the radical tariff policies proposed by President Trump, many experts predicted that the US economy was on the brink of a recession. This pessimism caused the US stock market to drop sharply to the brink of a bear market in April.
At that time, many investors approached me with concern:
“The US stock market seems very dangerous and may crash. Should we reduce our allocation to US stocks?”
My answer was:
“I don’t know. And I can’t know the short-term trend of US stocks.”
My advice was still to focus on the long-term risk-return allocation and to try to avoid short-term timing.
Most investors did not predict that within less than two months, the US stock market would basically recover, and on Wednesday this week, the S&P 500 index was less than 1% away from its all-time high. This represents a dramatic shift from the pessimism that pervaded the market two months ago.
The market’s brief decline and rapid recovery once again prove that relying on predictions of short-term economic trends, market movements, or political decisions by President Trump to dominate your investment portfolio is not reliable.
Investors should not spend much energy trying to predict or follow so-called expert predictions. Instead, they should assess their overall wealth plans by asking:
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Are you on track to achieve your financial goals?
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Does your portfolio allocation match your risk tolerance?
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Is your cash flow sufficient?
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Is your asset liquidity adequate?
We do not know exactly what the future holds. What we do know is that short-term volatility will pass. By focusing on these fundamental questions and maintaining a long-term perspective, investors can better position themselves to weather fluctuations and achieve their goals.
This is an original article written by Dr Peng Chen, Senior Advisor and Director at Providend, Southeast Asia’s first fee-only comprehensive wealth advisory firm.
For more related resources, check out:
1. Moods and the Market: How to Invest and Keep Investing
2. Principles for Successful Investing
3. Avoid These Mistakes in Equity Investing
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