Arguably, anyone can make money investing in the U.S. stock market when we have a year akin to 2019 where the Dow Jones Industrial Average (Dow) advanced 22.3% (excluding dividends).
However, what determines whether the stock market will make us rich or leave us beaten, bruised, and discouraged is how we react during times of significant declines. Therefore, the question is not, “Should you invest in stocks now?” Rather it should be, “Should you invest in stocks at all?”
Frankly, until we come to terms with the harsh reality that we can stay the course during the tough times, the answer is an unequivocal no. Stated perhaps more directly; if we cannot watch our stock portfolio decline10-40 percent without hitting the panic buttons, then I encourage you stay away from stocks, or perhaps just have a relatively small percentage of your assets in equities.
I cannot emphasize enough that we need to know and expect with absolute certainly that bad times for stocks will arrive again and furthermore nobody and I mean nobody knows when and for how long. The coming gut-wrenching times will hurt, as they always do. It will be scary and our emotions inevitably begin to succumb to irrational thinking, as the pouting pundits of pessimism will scream calamity from the rooftops. We must believe that in the end, these doomsayers are shouting the same song but with a different megaphone. Sadly, far too many folks have to learn the hard way by trying to time stock markets. Folks, this type of investment methodology is an un-winnable game over time. When I witness or hear about someone who thinks he or she can outsmart the stock market, I think of what Gomer Pyle would say, as he strains his voice in chastisement, shame, shame, shame!
I stopped trying to figure out the short-term direction of the stock market a long time ago, but I have convincing evidence that supports my position that the stock market goes higher over time (see compelling chart on the left). Of course, the higher advance does not increase every year, every month, every week, and certainly not every day. Regardless, I suggest that we heed the words of wisdom from the Oracle of Omaha, Warren Buffett, when he said in his 2015 annual letter ...”For 240 years it’s been a terrible mistake to bet against America, and now is no time to start ... America’s golden goose of commerce and innovation will continue to lay more and larger eggs.”
As a side note, what I find somewhat comical and quite disturbing is that when the markets are in a tailspin and there is fear and panic in the air, many “advisors” turn to seminars to “educate” the public about how the advisor can help navigate the volatility while protecting their money. This approach to investor teaching reminds me of the notion that one should never ask a barber if he needs a haircut.
In other words, if you ask an adviser if there is a problem with your portfolio, he or she will likely find one even if one does not exist! Here is the bottom line with all of these free food seminars. Swallow the food, not the sales pitch! A better game plan is to have a discussion with your current trusted financial advisor to discuss your portfolio’s asset allocation given your age, goals, and risk tolerance in light of the next protracted downturn in stocks and bonds. If you do not have a financial advisor or maybe you are losing confidence with the one you use, I can refer you to one. Ha! Ha! What a shameless self-serving promotion.
Regrettably, this critical advisor/client discussion repeatedly is placed on the back burner, especially during good times, as we often become complacent when all is hunkey dory. I suggest this un-worried mindset is taking place today with the bull market is in its 11th year of expansion, we have a strong job market, record low 3.5% unemployment with inflation and interest rates at historically low levels and the fact that we just experienced double-digit gains in 2019.
Lastly, always remember that no matter how thin you slice it, they are always two sides. Every day, heavily credentialed experts are predicting a market crash. At the same time, equally credentialed experts are predicting a boom. Who is right? It beats me. Both are predicting, which amounts to nothing more than an educated guess. Therefore, whom should we listen too? Neither! Instead, I argue that we implement a balanced, diversified, prudent, and cost-effective strategy and then stay the course, even with a side dish of panic.
This is Harry Pappas and I approve this message!
Harry Pappas Jr. CFP®
Managing Director-Investments
Master of Science Degree Personal Financial Planning
Certified Estate & Trust Specialist ™
Certified Divorce Financial Analyst™
Pappas Wealth Management Group of Wells Fargo Advisors
818 North Highway A1A, Ste. 200
Ponte Vedra, Florida 32082
904-273-7955
harry.pappas@wellsfargoadvisors.com
The use of the CDFA™ designation does not permit Wells Fargo Advisors or its Financial Advisors to provide legal advice, nor is it meant to imply that the firm or its associates are acting as experts in this field.
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