You Are Not Alone If You Are Concerned About the Market

It’s understandable to be concerned about the market right now.  Political dysfunction is everywhere and it’s not clear when the “cooler heads” will prevail or who exactly those “cooler heads” are at the moment.  The drop in stock prices in the last quarter has been sharp and across the board. Very few sectors or individual companies have been spared. The gains that were established earlier in the year have been erased. As you well know, we are nowhere near smart enough to predict when and where the bottom is. This has been painful for all investors, but we believe there is a real potential upside to much of the turmoil.

Most mutual funds have just declared and are in the process of paying their dividends and capital gain distributions for 2018. The value of these distributions is double and in some cases, triple the percentages from prior years. What this means is that at some time during 2018, the funds sold off shares in which they had recorded sizeable gains. We don’t know when this occurred during the year, but you as shareholders are receiving these proceeds.  As most of you know, when a mutual fund pays a capital gain or dividend distribution, the share price of the fund declines by the amount of the distribution and then the next day, you receive that same amount in either cash or in additional shares of the fund.  Most of you are reinvesting the cash automatically in additional shares of the funds.  These funds are likely now sitting on large amounts of cash. That is the position that you want to be in; lots of cash to invest as prices are falling. The funds we recommend for our clients are managed by very smart people and you have seen that over the years. Will they be perfect in timing when to reinvest this cash?  Probably not, but they will be smarter than we, as individual investors, trying to time the market would be. That is why we are recommending that almost all of our clients maintain their holdings and wait for the furor to subside. It will, maybe not next month or even next quarter, but there really will be positive outcomes after all of the turmoil.  

Our best advice:   Enjoy the holidays with your families and appreciate our many blessings!   

Best wishes for a Merry Christmas, and a Happy, HEALTHY 2019!

Bernie, Lori, and Marci