Many investors are becoming more afraid to keep money in the markets because of the rising tensions between North Korea and the U.S. As Kim Jong-un holds his hand over the big red button, should you do some selling in preparation for a stock market meltdown? Or is the fear and panic overblown?
I’m not convinced that we’re on the brink of World War III, and you should never speculate on such events happening. Sure, stocks will crumble if it does happen, but in the more likely scenario in which it doesn’t happen, you could possibly miss out on another rally as the TSX reaps the rewards of a strengthening American economy.
You may have heard of Tony Robbins, the motivational speaker and author of personal finance books such as Money: Master the Game. He talks about some of the most common mistakes that investors make and how those mistakes could be detrimental to their returns. Trying to time the market is right up there on the list of things not to do.
If you missed just 10 of the best trading days over the last 20 years, your returns would drop by a whopping 4.5%. Timing the market is a gamble, and if you’re wrong, your long-term returns could take a huge hit. Your best bet would be to stick with a diversified portfolio of wonderful stocks and stay the course for the long haul. Sure, you could make small modifications here and there, but don’t make impulse decisions, like selling a huge chunk of your portfolio just because you’re afraid of a nuclear apocalypse.
With all of this tension, one thing is certain: there’s probably going to be a lot more volatility on the road ahead. If you’re a follower of the VIX, the CBOE Volatility Index, then you’re probably aware that it has shot up by a substantial amount over the past month. The VIX, also known as the “Fear Gauge,” is a popular way to measure the amount of implied volatility, and if it spikes, then you can expect stomach-churning volatility from the S&P 500 index as well as other global indices.
But if you’re a contrarian investor, then this increased volatility is likely music to your ears. More volatility means more opportunities to buy temporarily beaten-up stocks, and that’s exactly what this frothy market needs. Stocks have run ahead of themselves since Trump won the election, and a correction is really what this market needs before we can head to higher levels from here.
Keep stocks of wonderful businesses such as Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM) on your radar, because a fat 5% dividend yield could be in the cards over the next few months.
If volatility happens, will you be fearful? Or will you be greedy?
Stay smart. Stay hungry. Stay Foolish.
