Why You Should Ignore the Stock Market in 2020 (2024)

Last year was stressful at best for investors at all levels. The Federal Reserve cut interest rates several times after years of growth. President Trump really leaned into his trade war with China. The stock market hit some notable highs and lows. And financial pundits threw around the word “recession” so much that we had to break down the factors to be on the lookout for,just in case they were right to suspect we were nearing one.

While recession chatter has quieted, 2020 is still off to a wild start. We had a few days of will-we-or-won’t-we about the situation in Iran, the Dow has hit 29,000 twice, we got a China trade deal and all eyes are on the 2020 presidential election that’s creeping ever closer.

And if you read too far into the financial columns, you’re going to work yourself into a frenzy. A Marketwatch post said to stay bullish this year. Yahoo Finance had the most unhelpful headline, “Most experts predict gains, some expect losses.”

So who are you supposed to trust?

The answer might surprise you. The answer is yourself.

I’m not going to get all woo-woo on you, but when it comes to investing with confidence this year, you ultimately call the shots. I talked to a few investing experts about what to consider as you dig into a year that is sure to be far from boring.

Do not fear the Great Recession II

If you’re someone who involuntarily shuddered every time you heard the word “recession” last year, you are far from alone. Investors have biases that develop based on their formative years, said Dan Egan, managing director of behavioral finance and investing at online investment company Betterment.

Those memories from 2008 may still give you nightmares, but you shouldn’t curb your efforts to grow your nest egg because of them. “The people who came through the last recession tend to benchmark to it too much,” he explained. “That crash and that recession were so large and so upsetting that we forget that they’ve only happened twice over the course of 120 years.“

Since you can’t see the future, your smartest move is to diversify and mind your own business, basically. “The best defense against a wide range of outcomes is to stay diversified and understand your risk tolerance,” said Anthony Saglimbene, global market strategist at Ameriprise Financial.

At least pretend you don’t care

If you’re worried about whether there’s a recession coming, “You might need to revisit your asset allocation,” said Brandon Renfro, a CFP and finance professor at East Texas Baptist University. “If you’re in the right allocation, maybe you wouldn’t be so worried.” If you’re nervous about where the economy is heading, scale back the amount of risk in your portfolio by switching some of your allocation from stocks over to bonds.

Renfro said clients will ask him if he thinks the market will continue to do well if Trump is reelected in the fall. “I don’t think about that,” he explained, instead asking them, “How would you feel if that happened?“

To evaluate your risk tolerance, don’t think about pie-in-the-sky positive returns. Think about all the negative scenarios that could take place, said Saglimbene. He recommends asking yourself two questions:

• How much can my investments drop in value at any given time without sparking the need for me to make significant changes to my portfolio?

• Can I sleep at night if my investments dropped X% (fill in the blank)?

And don’t forget your timeline, too. Allocating your assets should rely in major part on your age and time until retirement.

Instead of getting wrapped up in whatever day-to-day drama happens in politics this year, Renfro recommends—if you truly must think about the markets—to keep an eye on the Shiller P/E ratio, also known as the Cyclically Adjusted Price-to-Earnings ratio (CAPE) or the P/E 10.

The higher the ratio, the lower returns you can expect going forward; if it’s a lower ratio, you can expect higher return. It’s not a guarantee by any means; it’s just another predictor of long-term results based on the valuation of the stock market. Right now, the ratio is fairly high, indicating modest future returns.

Don’t use the Shiller P/E to time the market, Renfro emphasized, but use it to think about your own risk tolerance. And don’t resist if you feel that risk tolerance changing.

“Maybe you felt better when you made your asset allocation in the middle of a bull market,” he said. “Maybe you confused yourself into thinking you had a higher risk tolerance than you really do.” Your optimism (or pessimism) about your portfolio doesn’t have to be the same forever in order to allow your investments to grow.

Focus on what you can control

Egan said that when it comes to finances, really successful people “Can differentiate between things they can control and predict with a high degree of certainty and those they can’t.“

One of the ways to feel like you’re in control is to focus on investing in yourself instead of fretting about the markets. Egan said many people feel locked into a career path by 25 or 30 and stop making those mindful investments that can propel a career upward, rather it be in terms of skillset or compensation. If you want to be more comfortable this year, can you negotiate a raise? Get a certification? Take on a side hustle you’re passionate about?

By strengthening your own money situation outside of the markets, you can then make decisions about your investments (including those tax-advantaged retirement plans through your employer) more confidently.