The American Dream Is Not Dead.

The current equity market downturn has, predictably, brought out the annuity salespeople selling fear. This is an example of the Wall Street bullies encouraging people to move their money. These bullies will find some obscure evidence that ‘this time it is different and the equity markets will not recover’.  They use fear to sell the ‘safety’ of annuities.

The Statue of Liberty front shot, on Liberty I...
The Statue of Liberty front shot, on Liberty Island. (Photo credit: Wikipedia)

With the help of the media these bullies will entice people to sell their equities, thereby locking in losses and buy annuities.

The bullies will find ‘predictions’ that justify moving to safe investments like annuities or CDs or cash or maybe alternatives like gold. These predictions might sound something like “3 reasons the pullback could become far worse”. Although possible, yes it could get worse, NO ONE can consistently predict what will happen in the future. Anyone who correctly predicted an event cannot be relied upon to correctly predict future events.

In other words there is no correlation between past performance and future results.

Remember the reason the equity markets provide a superior return over the long term is because of the volatility (risk) both up and down. As a point of reference from 1926 through 2012 the Standard and Poor’s 500 has earned approximately 9.82% per year on average. During this time there has been downturns of 10% or more 87 times. So to earn a superior return over time we need to deal with downturns.

 

Hopefully I am wrong about this but perhaps Americans have given up on the American Dream. They might believe that it is hopeless and they need someone to take care of them, like the government or an insurance company. I do not believe that you can rely on the government or any insurance company for your financial future.

There is no such thing as a ‘free lunch’.

I do not believe the American Dream is dead. In fact I believe this is a great time to be an American. If we work hard and remain disciplined we will succeed in the long run. Of course, there will be bad times but these bad times will pass.

There is a tendency for people to believe that when times are good they will always be good and when times are bad they will always be bad. This past winter has been a great example of this. It seemed like it would never end. But as I look outside today the snow, what’s left of it, is melting fast. Spring is finally here. The ‘bad times’ are ending. Ok, as I write this there is a snow storm predicted for Sunday April 13, but still it will end.

Most people do not understand, including most ‘financial advisors’, how to engineer a mix of assets (portfolio) to capture the return premiums that are available to them in the market—and to do it consistently over time. Understanding risk/return dynamics is essential to seeking market rewards.

Because we are emotional beings we need the help of an investor coach to build the right portfolio for us and remain disciplined. We need constant reinforcement of the academic principles that will lead to financial success that coaching provides.

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