Ideally, we should all just time the market cycles and only buy when the market is low and sell when the market is high. Unfortunately, few, if any investors are able to do this with any consistency.
We tend to make our investment decisions based on recent past events and how we feel about those events.
If the market has done well lately, we are comfortable buying stocks. If the market has done poorly, however, we avoid them. Unfortunately, this is the exact opposite of what we should do if our goal is to maximize our long term return. Once we feel “comfortable” with the market, we have usually already passed up large potential gains. The stock market is forward looking and usually starts trending upwards between 6 to 9 months ahead of the economy actually recovering from a down cycle.
Remember, Warren Buffet is a buyer and NOT a seller.
There is an unholy alliance between the media and the large financial institutions to convince the investing public to continue trading by spreading fear and panic. The large financial institutions make money when you trade in and out, making money on every trade. The media encourages sensationalism because it sells advertising.
You should own equities…globally diversify…rebalance and believe that America and the capital markets will recover. We as a country have been thru much worse and we recovered and became stronger.
Not all sectors of the economy will recover or come back to where they were prior to 2008. Other sectors will recover quickly and new sectors will emerge and thrive. The problem is no one can consistently predict what will happen and when.
I find it curious that ‘crashes’ of the past are seen as buying opportunities. While current and future ‘crashes’ are seen as risk.
Since 1946 every downturn of 10% or more experienced a subsequent recovery. The average recovery time was 111 days. Of course, this is the past and some recoveries were much longer while others very short. We must also understand that past performance is no indication of future results.
The real message here is that equity markets around the globe experience down turns some more extensive than others. But there has been recoveries and many times very quick recoveries.
As an investor we cannot deal with this volatility alone. Our emotions will take over and we will sell low and buy high.
We need the help of an investor coach/fiduciary adviser.