When Should You Get Out of the Equity Markets?

Well the government is open again….for now. The equity markets have now changed focus from the government to corporate results with favorable outcomes. Many investors were in a panic about a possible default of the U.S. government debt .This debate will continue and again come to a head in January. What will happen is anyone’s guess.

Finance (Photo credits: www.myhardhatstickers.com)

No matter what the current events, investors will be ill-advised to attempt any market timing. That is getting out of the market when the financial media tries to forecast the future. It is very difficult if not impossible to determine when to get out and then determine get back in. Even when someone is able to successfully do this once it is a matter of luck and not skill.  There is no evidence that anyone can consistently time the market.

This however does not stop the Wall Street bullies from marketing the few analysts that got it right. They try to convince the investing public that these same analysts have a special gift and will repeat their incredible performance. If it were true why would the Wall Street bullies have hundreds if not thousands of analysts on staff? These bullies know that in any given year a few of their analysts will get lucky and ‘beat’ the market.

Unfortunately for investors there is no way for them to determine which analysts will be the lucky ones in the future.

As I have said  many times in the past you are gambling and speculating with your money if you:

  • Stock pick.
  • Market time.
  • Track record invest.

If your investment portfolio is needed to last your lifetime, gambling and speculating will lead to disappointing results. Of course some will get lucky and hit it big but there is a high likelihood that they will continue gambling until they lose.

Investors who need their money to last a lifetime need to build a prudent portfolio at the appropriate risk level. There are three simple rules of investing:

  • Own equities and fixed income.
  • Globally diversify.
  • Rebalance.

If you follow these simple rules you will be able to take a prudent income with adjustments for inflation.

And inflation will be your main challenge in retirement.

For example, if you have $1,000,000 today and inflation averages just 4% per year. In ten years you will need more than $1,400,000 to have the same purchasing power.

Equities are the greatest wealth creation tool on the planet.

You need to ask yourself if the stock market goes down and stays down will the financial system survive? What will your money be worth? There are many unanswered questions and these questions are unanswerable.  No matter what happens to the financial system people will continue to demand products and services.

To reach your long term financial goals you will need the assistance of an investor coach. Your coach will help you build YOUR portfolio at the appropriate level of risk. When this is accomplished your coach will keep you focused on your long term goals. They will help you resist the hot asset classes or hot stocks. As well as keep you from panicking and selling when the equity market declines.

Finally at the risk of being a name dropper I like the quote of Dr. Eugene Fama winner of the Nobel Prize in Economics for 2013.

“Diversification is your buddy.”

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