“I will tell you the secret to getting rich on Wall Street. You try to be greedy when others are fearful and you try to be fearful when others are greedy.” – Warren Buffet
I want to share some observations from the past six months.
Last October, the world was trending towards a very fearful and pessimistic place. It felt like the U.S. stock market fell every day during August, September, and November. Until it didn’t.
In fact, CNN’s Fear & Greed Index bottomed at 22 (100 point scale) on October 27, 2023. The market was viewed in “Extreme Fear.”
Fast forward to March 2024, and the Fear & Greed Index stands at 71. On the high end of Greed (Extreme Greed begins with a score of 75).[1]
The S&P 500® has nearly gone straight up (25%) between November 1, 2024 and May 9, 2024.
What changed?
For the goal-focused clients that we lovingly serve, I’d argue very little changed.
The news got a little less bad. Earnings were better than expected. But otherwise, not much changed.
Why does this matter?
I want you to be aware of the market sentiment because most investment mistakes are made during the periods of extreme. During periods of extreme fear, it’s common for people to sell their perceived riskier assets (like stocks).
During periods of extreme greed, it’s common for people to chase performance and buy the hottest names that might be discussed among family, neighbors, and highlighted on your favorite news network.
Why are you sharing this?
Let’s let the past 6-7 months serve as a reminder that you can’t time the market. The closest thing we have to an answer key is a written goals-based financial plan.
A goal-based financial plan will follow a framework like this:
- Asset allocation: How much you should have in cash, fixed income, and equities?
- Defined asset location: How much you should be investing in taxable, tax-deferred, and tax-free accounts?
- Contributions: How much do you need to be contributing monthly to fund your families most cherished goals?
It all starts with acting upon a plan and not capitulating to fear and greed.
If you or someone you’re close to could use help aligning their finances and establishing a financial plan, please reach out to us, we’re accepting new clients and eager to help.
Cheers, Nic
Disclosure:
Please ensure your disclaimer is acceptable or use this one, e.g.The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. Indexes are unmanaged and cannot be invested in directly.
Please ensure your disclaimer is acceptable or use this one, e.g.Asset allocation does not ensure a profit or protect against a loss.
Please ensure your disclaimer is acceptable or use this one, e.g.Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal
[1] https://www.cnn.com/markets/fear-and-greed
