Dear Quentin,
I recently opened a robo-adviser account because purchasing and picking stocks seems complicated, and I would have no idea what I am doing. I figured a robo-adviser would take out a lot of guesswork and confusion. All I have to do is deposit money and let the account do the hard work, which works for me.
I opened my account in September 2021 with a $300 deposit and I have deposited a total of $9,298 into my account. However, I have $8,522 invested as I have taken in some losses. I keep depositing money into the account with not many gains, I feel like I should maybe have $10,000 by now.
A friend of mine suggested I can just keep putting money in a high-yield savings account and when the stock markets are getting better, I can just deposit a lump sum into my robo-adviser account. But I keep reading that I should just keep investing as the stock market will eventually pick up.
I am freaking out! Should I keep investing given that few people have luck by timing the market? Rumors of the stock market crashing are not helping. I know investing comes with risk, but I am a bit scared to lose all my hard-earned money. I have no idea if what I am doing is good or bad.
Are my numbers so far any good?
Anxious Investor
Dear Anxious,
You may have lost money over the last 10 months, but it could have been a lot worse. Your investment is down around 8%. The Dow Jones Industrial Average DJIA, -0.62%, meanwhile, is down almost 10% over the same period, the Nasdaq Composite COMP, -0.95% is 27% lower, while the S&P 500 SPX, -0.92% is down nearly 15%. So your robo-adviser should take a bow.
Of course, there’s no guarantee that your portfolio won’t plunge lower, or even go higher. With persistent worries about inflation, the U.S. Federal Reserve’s delicate balancing act — trying to control inflation without pushing the economy into a recession, which some say is already here, anything can happen with stocks. So buckle up, sunshine.
A stock market crash is, by definition, a sudden and protracted fall in stocks that is also typically unexpected. By those standards, the stock market has already experienced a dramatic decline and, at the very least, many stocks have seen their value plummet. Some say this could be a “lost decade” for stocks. Others say a bull market is just months away. Maybe.
As MarketWatch reported, B. of A. Global Investment Strategy’s chief investment strategist, Michael Hartnett said the average peak-to-trough bear-market decline is 37.3% over a span of 289 days. Matching that pattern would put the kibosh in the current market downturn on Oct. 19, 2022, which happens to mark the 35th anniversary of Black Monday.
“‘As the 2008 financial crisis showed, the stock market eventually recovers. It just takes time. You need to make sure you have time.’”
But analysts are expecting more grim inflation data on Wednesday. “This is a very important season (aren’t they all) as the collapse in equities so far in 2022 is largely due to margin compression [costs rise for companies that can’t pass onto consumers] and not really earnings weakness,” according to a team of strategists led by Jim Reid at Deutsche Bank.
You could put your money into a high-interest savings account, or continue to invest at the current levels. You will rarely, if ever, be able to time the peak of the market before a downturn, but the good news for those who wish to invest: we’re a long way from that now. As the 2008 financial crisis showed, the stock market will eventually recover. You just need to make sure you have time.
Robert Seltzer, founder of Seltzer Business Management in Los Angeles, Calif., says you are experiencing one of the shortcomings of robo-advisers. They encourage you to invest consistently, but they don’t replace humans. “Unlike with an account with a responsible financial adviser, there was no conversation about risks and what to expect or how the stock market works.”
From your letter, Seltzer said he can’t really tell whether investing in the stock market was appropriate for you. For example, if you were saving for a downpayment on a home in a year or two, he says the stock market would not be appropriate for you right now. However, if this was for retirement and you are in your 30s, then Seltzer says it would be appropriate.
“‘There’s a good chance you will look back on this period of the stock market and see that you invested at a good time. Maybe. There are no guarantees.’”
“There is volatility in the stock market and, if you are a long term investor, it is fine,” he adds. “However, the stock market is not the place to put emergency funds or short-term money.” Your friend’s suggestion, as you indicate in your letter, is not exactly a wise one. “Trying to pick a time to get back in the market is next to impossible,” Seltzer says.
Michael J. Mussio, president at FBB Capital Partners, believes you should keep going. “You are currently employing some of the most successful strategies of long-term investors,” he says. “You’re investing early and often, and you’re doing so by dollar cost averaging over time rather than putting a bunch of money in the market at once trying to time a bottom (or a top).”
“It can be frustrating to see negative returns as you move closer to the one year mark since you first began with your plan, however, you’re likely better off having spread your investment out over time,” Mussio adds. “By spreading your investment out over time, you have been buying more shares of your current strategy at lower prices for most of this calendar year.”
The only way for you not to lose all of your hard-earned money is not to invest all of your hard-earned money. If you have no idea what you are doing, find a robo-account that has a human being who gives you advice. And if you are freaking out and it’s making you miserable, you are answering your own question: only invest what you are comfortable losing.
But remember any losses you see now are paper losses and over your investing lifetime of the stock market, as Mussio points out, there’s a good chance you will look back on this period of the stock market and see that you (probably) invested at a good time. There are no guarantees. But the market’s previous performance over time is a good indicator of its future performance.
On that basis, I think you should take a deep breath and, assuming you are a couple of decades away from retirement, freak out about something else instead.
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