What Is A Crash or Bear Market?

In discussions with clients and prospects I hear talk of another eminent crash. This is typically the result of listening to an insurance salesperson selling their product of the day. Their pitch goes something like this. Quoting some Wall Street prognosticator, the market is at an all time high and it is ready for a crash. These Wall Street bullies will tell you to move your money to an annuity so it will be safe from the inevitable crash. They will tell you that you need to act now…before midnight.

English: Wall Street sign on Wall Street
English: Wall Street sign on Wall Street (Photo credit: Wikipedia)

With this solution you have given your money to the insurance company and will be penalized if you take it out too soon. Remember this is your money. And you lose all control because of a short term fear.

The policies will have a large number of restrictions that even the agent is unaware of.

These policies often offer income for life at a cost and it is a huge cost. This guarantee will cost you because the purchasing power of your money will get smaller each year.  In other words inflation will cost you big in the future. Some policies offer inflation protection for an additional cost. The issue with this protection is that  the policy will use CPI to determine the inflation rate. The CPI excludes food and fuel (energy) and perhaps health care in the future. You need to ask yourself..what are the three biggest expenditures during retirement? In most cases this will be food, fuel (energy) and health care.

Inflation, in my opinion is a retirees number one risk.

Another approach by these bullies might be to exit the market and wait for the crash then buy at the low or on the way up. This is another example of playing on your emotions. These bullies know that investors are fearful that another crash like the 2008 crisis is right around the corner. This is market timing and been proven to be unsuccessful in nearly all cases. Past performance or track records have zero correlation with future results.

In other words no analyst(s) is (are) able to consistently predict the future market direction.

One suggestion is to ask this advisor for an audited performance record using the Global Investment Performance Standard (GIPS).

This of course does not stop the Wall Street bullies from marketing their past successes. And even then this data is suspect. Remember there are two groups of people predicting equity market directions,

those who don’t know where the market is going and those who don’t know they don’t know where the market is going.

This brings back the original question …What is a crash  or a down market of a bear market? Investors continue to fear the unknown. With the 2008 crash fresh on our minds, is another crash around the corner? No one can answer this question with any certainty. But this does not prevent the bullies from making predictions. At some point another crash will occur.

Unfortunately no one can predict when it will occur.

The definition of a crash depends on you the individual it might be 10% down or 20% down or 40% down like 2008.  Remember the first quarter 2009 the S&P 500 was down an additional 24% yet the year end performance was a positive 23%.

The 2008 crisis has been seen as the worst market performance since the 1929 crash although some might say that the 1973-74 crash was just as bad.

The point is there have been bad markets in the past and there will be bad markets in the future. If you are properly diversified at YOUR level of risk your recovery could be quicker than most might think.

There a trait of human beings that says when times are good they will always be good and when times are bad they will always be bad.

Of course, past performance is no indication of future results. But I believe if you follow the three simple rules of investing:

  • Own equities and fixed income
  • Globally diversify
  • Rebalance

You can be confident that your portfolio will perform well in all market conditions. This will require the assistance of an investor coach to not only develop the proper portfolio for you but keep you disciplined in both up AND down markets.

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