Looking at our 401K statements may be difficult. Wild 4thquarter has many of us wondering what to do. Stock markets fell 12% to 17%, volatility has returned with a vengeance. During last 6 months, Seattle real estate fell 11% though buyers will tell you buying a home is still difficult.
Don’t often drift off business, careers and leadership beat, but will add my thoughts what is coming this year. First not a professional, but an investor with a very small ‘i’. Was a real estate appraiser, but not for 8 years. No one knows what will happen in 2019 despite what gurus tell you. I certainly have no insider information, just common sense.
My 401K was down ~5% in 4th quarter. But was up 17% over 3 years, or 5.5% per year. In mid-2018 looked at the length of the bull market, and put a fourth of my money in a stable fund paying 2-3%. Reduced my stock percentage to be even with bond funds. Probably reduced my 2018 returns, but prepared for current market.
Recessions do not happen on a schedule. We may be in the midst of one now. The US & Japan’s economies are strong, China’s economy is slowing, and Europe’s economy has major risks in banking sector and Brexit. Don’t forget risk of trade war between US and China. Overall the world economy has been resilient.
The Federal Reserve Quantitative Easing and keeping low interest rates too long (Bernanke and Yellen) have inflated value of assets such as stocks, bonds and real estate. The Fed, European Central Bank and Bank of Japan are now ending accommodative policies raising interest rates.
What should we do now? First don’t panic. After a ten year bull market, a recession in asset values would be normal. Expect this to take 1.5 to 3 years to correct. Values typically drop by 20% to as much as 50%. With the current market we may be halfway there. Some stock prices are looking better at lower P/E’s.
Real estate is local, so harder to analyze. Understand buyers waiting a year or two to potentially save money by buying then. West coast real estate could fall another ~10%.Regulations since the 2008 crash will make prices fall a smaller amount as mortgages are stricter. Again your market is different.
Look at your situation and risk tolerance. If you are still working keep saving. Diversify your investments to include cash, interest and dividend paying assets. Bonds do have risks in raising interest rate environments, but I only expect the Fed to raise interest rates once or twice in 2019.
My thoughts are to keep investing in my 401K. 2nd half of 2019 or in 2020 expect to raise the percentage of stocks in my account. Not planning to retire until in my 70s or later, am planning for savings to grow after this is over.
You may want to delay retirement a couple years. Some of my entrepreneurial friends may plan for less growth, or look for a safe haven to work in until this pullback is over.
Expecting a normal recession, not a great depression. However no one really knows if will end soon or later. By preparing we will get through this like the many recessions we have lived through.
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