During conversations with investors I continue to hear apprehension when the subject of stocks is discussed. This apprehension or fear is completely understandable. We hear nothing but bad news from the media, the continuing battle in Washington, the liberal tone of the current political environment, like it or not, our own budget deficit and ballooning debt, the list goes on and on.
Will there be down markets in the future? Absolutely, there is no doubt. However, no one can tell you when and which countries and/or sectors will be involved.
The equity markets around the world are random and unpredictable.
This is undeniable. However, the equity markets remain the greatest wealth creator in the world, if properly used. This does NOT mean picking the right stocks or market timing, getting in and out of the market at the right time. Neither of these activities promoted by the Wall Street bullies are in your best interest. These activities benefit the Wall Street bullies and will not improve your returns.
The market returns are there for the taking, they are waiting for you to take advantage.
There will be periods when a globally diversified portfolio will underperform. For example, these portfolios underperformed during the 1990s. Because .com companies were the rage. Then the bubble burst and fortunes were lost. Except for the globally diversified portfolios. They continued to earn positive returns. With the exception of 2003, -3%.
Your time can be much better spent than worrying about the direction of the equity markets. If you have developed a prudent portfolio and remain disciplined you will succeed long term. This will require the help of an investor coach who will keep you from letting your emotions take control.
Remember the Equity Markets are forward looking:
- Expectations about the future are in today’s price.
- Market returns are not strongly correlated with macroeconomic variables such as GDP
- Markets can provide positive returns even during periods of poor economic performance.
- Timing markets is difficult.
A study was done looking a past recessions and stock returns. The conclusion there is no correlation between recessions and stock returns.
To succeed in reaching your long-term financial goals you need to own equities, as scary as this may seem, globally diversify, no one can tell you which countries and/or sectors will outperform and rebalance, buy low sell high.
If you these simple rules you will stop gambling and speculating with your investments and improve your results with less anxiety about the future. If you are younger growth must be your goal, a retiree your goal is to keep pace with inflation. Owning equities in your portfolio is a great solution to accomplish both.