How to Use the Current Volatility to Your Long-Term Advantage

December 3, 2021

By Trish Regan

Investors are out over their skis on this one…

As I detailed yesterday, the new COVID-19 variant, Omicron, continues to whipsaw the markets. Stocks slid on Wednesday again, the S&P 500 Index fell 1.2% and the Nasdaq lost 1.8% after news that Omicron was detected in the U.S.

Now, while the new variant certainly has the ability to impede global travel and could even further stagnate the supply chain (should factories overseas need to close due to virus breakouts), it’s worth repeating that we’ve seen this movie before – twice already – when the market tanked and then recovered in March 2020 (COVID) and again last summer with the Delta variant.

In fact, I’d wager that we’ll see it again and again in future years. The reality is we must continue to adapt our lives and learn to be more flexible with travel, masks, vaccine cards, and technology.

Just as I promised in March 2020, on a day when the market was down 2,000 points: We will get through this – and emerge stronger as a nation and as an economy.

The smart money knows this… It’s why so many funds have had such great returns over the last year, and I’ll remind you that the S&P is still up roughly 60% from the COVID crash in March 2020.

Today, I’ll detail some real reasons for a sell-off (not related to COVID) and explain why, despite these risks, I’m keeping a clear head and staying long…

All-Time Highs 

I’m not buying the fear factor as a reason to sell. I never have and never will… especially given what I know about the media’s mode of operation, as I explained yesterday.

But there are other reasons to grow skittish about the markets, aside from Omicron…

  • First, there is a belief that this market has been priced for perfection. We’re trading near all-time highs, so some investors may be looking for an excuse to lock in profits as we approach year-end.
  • There’s some fear that we may have reached the point of irrational market euphoria, with too many retail investors crowding trades. (I mean, when your hairdresser can’t stop talking about Dogecoin, that might be indicative of a top… I get it.)
  • Margin activity in retail accounts is at an all-time high, suggesting too many retail investors are borrowing money to invest in stocks.
  • Cyber Monday sales were down 1.4% from last year – the first time Cyber Monday sales have ever declined – perhaps indicating folks are pulling back on spending.

The Glass Is Half Full

Despite these real market risks, it’s important to not let emotions rule your investing outlook. I’m thinking big-picture and remain bullish.

Let’s face it, market timing is next to impossible…

The smartest thing to do is to continue dollar-cost averaging into your favorite opportunities. What I mean by that is to invest your money in equal portions, at regular intervals, regardless of the market’s ups and downs.

And on days like last Friday or this past Tuesday? Well, those are your chances (provided you have the liquidity) to throw a little extra money to work.

My rule of thumb is when the market tanks 1.5% (or more), I want to get in…

Meanwhile, there are reasons to still expect more upside… perhaps not as much as the last year and a half, but still upside.

First, the Fed is still highly active. The central bank is not too keen on raising rates and if it does, it’s probably because it’s the healthy thing to do. (But don’t hold your breath.) And in terms of tapering, well, the Fed is highly reluctant to take the punch bowl away… ever.

Meanwhile, there’s an extra trillion dollars to put to work on infrastructure – and possibly trillions more via Biden’s Build Back Better plan if it comes to fruition.

I still believe oil is still heading higher, as I wrote about in late October:

There’s little that could persuade me to believe that the momentum in oil prices will stop. As long as the administration pursues a politically motivated (instead of economically motivated) agenda, as long as the Fed continues its money printing via artificially low-interest rates, and as long as the ESG community continues to penalize the oil industry, oil prices will continue to soar.

Financials are a dependable sector no matter what the markets do… Who doesn’t want to be in bank stocks if rates go up? And who doesn’t want them when rates are low given the trading revenue?

As a long-term investor, you’re far better off continuing to dollar-cost average into the market than parking your cash under the mattress. If you simply sit on cash, you’ll have a lot less of it in 10 years, given the rate of inflation.

How to Play It

Finally, if you’re getting worried, there are investments you can and should hold to help even out some of the fluctuations in the markets.

It’s critical to own a truly diversified portfolio with four basic elements – stocks and bonds, plenty of cash, gold and silver, and a little bitcoin/cryptocurrency.

Gold works as an inflation hedge, and it supports your portfolio in challenging times. Lately, it hasn’t always performed in keeping with what you’d expect – in part because it’s getting some competition from the crypto arena.

Gold and crypto are still fundamentally different instruments with entirely different risk profiles, so I’d recommend investors compartmentalize these asset classes and not comingle or confuse them.

I still like bitcoin. But please recognize that bitcoin has a lot of risk, and therefore isn’t a “safe haven” that I’d count on as an instrument to help prop up my portfolio in challenging times.

I encourage you to turn to Stansberry Research’s crypto expert Eric Wade if you’re interested in investing in bitcoin. His immense crypto expertise has helped him deliver the biggest gains in the company’s 20-plus-year history. You can find out more about Eric’s products and latest bitcoin message here.

The bottom-line here is: don’t panic. Know your risk tolerance and have a plan… and most importantly, stick to it – regardless of the groupthink that pervades your TV and computer screens.

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Regards,

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Trish Regan
Publisher, American Consequences
With Editorial Staff
December 3, 2021

More from Trish Regan 

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