One of my favorite expressions from legendary investor John Bogle is, "Don't do something, just stand there."
As the father of index investing, Bogle has been a champion of the buy-and-hold investment philosophy. In other words, buy good-quality stocks, preferably an index of the S&P 500 stocks, invest regularly and let time do its magic.
Of course, such a strategy works well on paper, but gets a serious emotional test in times like these. Daily swings in stock prices, often in sizeable amounts and with a negative bias, makes nervous investors wonder if it is better to be safe than sorry.
"I realize it can be tough to embrace the uncertainty, but the long-term gains from stocks will reward you for staying with them,” said Charles Rotblut of the American Association of Individual Investors.
“In the shorter term, keeping a large enough allocation to cash and short-term securities to cover living expenses and other emergencies can help give you the confidence to stick with stocks throughout the current turbulence."
Investors are being tested now with the uncertainty of what will happen Thursday after the meeting of the Federal Reserve's open market committee. Analysts and many economists are all but assuring a rise in short-term interest rates — despite repeated warnings from Chair Janet Yellen that such a move is imminent — will trigger a significant reaction by Wall Street traders.
None other than Warren Buffett has repeatedly said a change in Fed policy is a nonevent for long-term investors and, if anything, could create an actionable buying opportunity.
Students of the Fed say that past chairmen Paul Volcker and Alan Greenspan have had a different, less transparent, approach to raising and lowering interest rates.
Paul Hickey, managing partner of the Bespoke Investment Group, said their policy was, "one hike means another hike at the next meeting, and another hike at the next meeting, and another hike at the next meeting."
However, the Ben Bernanke and Janet Yellen policy will be different.
"Here's a hike, let's see what happens, and between now and the next meeting we'll assess things, and if the data continue to support another hike, we'll hike rates. But if we don't see accelerating data, we won't hike rates," is how Hickey see the current Fed acting.
Fortunately, the wait won't be much longer. The Fed will unveil its current reading on the economy, interest rates, inflation and job market Thursday morning. The announcement will be following by a news conference with Yellen. The world and Wall Street will be watching and listening.