What Is A Crash? Part II

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. 

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.

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 or 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 is 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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