I essentially wrote this exact article over three years ago. The message bears repeating now.
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 International crisis, terrorism at our front door, the Federal Reserve may raise interest rates, the liberal tone of the current administration 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. We are experiencing a bad market right now. However, no one can tell you when and which countries and/or sectors will be involved. And no one can tell you when the markets will recover.
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.
Listening and taking the advice of the Wall Street bullies is not in your best interest. These bullies include shows like Hannity or Limbaugh or OReilly who tell you how horrible everything is and try to instill fear.
Even worse taking stock picking advice from the likes of Jim Cramer.
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.