The S&P500 index recently had a furious rally after a continuous decline since the beginning of this year for about 2.5 months.
As you can see from the above chart, this rally has occurred for the past 1.5 weeks, and it has undone one month's worth of downward pressure. Many of us would be feeling the FOMO and don't quite know what to do next. Should you buy it now? Or should you wait a bit for the price to come down? How do you time this?
The answer is quite simple, but before we get to that, let's make one thing clear. YOU CAN NOT TIME THE MARKET. If you think you can wait a bit for the price to come down so you can buy cheaper, the chance of that happening is entirely random. The price may shoot up even more and never come back to the price point where it is now.
The answer for your foundational passive income portfolio is that you ignore the price movements and continue making your regular periodic contributions to purchase the ETFs. Remember, you will never sell the ETFs in this portfolio.
The answer for your other more risky portfolios is to analyse and decide on a decision you will standby for the next five years. If your portfolio consists of individual company stocks and you experienced a painful market crash that wiped out months of your returns, don't blame your companies for the losses. For example, the recent market crash we had (beginning of the year 2022) was due to the fear of the central banks raising the interest rates and then the Russian invasion of Ukraine. If you own a Tesla stock and it went down significantly, you should analyse the following and decide based on them.
- Higher interest rates would make companies more difficult to borrow money. What does the cash flow look like in your company?
- The trade sanctions put on Russia will affect the supply chains for manufacturers like Tesla. What does Tesla need, and how do they get them? Are they negatively affected by the sanctions? What are they doing to get themselves out of this problem?
If you believe your current companies are still the better choice than others in the industry for the next five years, perhaps you can hold onto them. Even if you decide to keep, according to our guide, your size should be relatively small by the time recession arrives.