We all witness steep stock market declines at one time or another. If you use a “buy and hold” approach to investing, this hurts and it’s worrisome. If you’re a regular reader, you also understand that I’m no fan of “buy and hold” and that these heart-stopping drops are examples of why I feel the way I do. I believe there are alternative investment strategies that work – especially in markets like these. While no investment approach works perfectly, there are strategies which can take some of the fear out of times like these.
Of course, nobody can accurately and consistently predict the stock market. Every investment strategy has its pros and cons. Let’s discuss why the market takes a swan dive.
Why did the market plunge?
It’s interesting. The economy in the United States is basically in a status quo position. In other words, nothing has really changed from where we were several months ago. We didn’t go into default. The government is still operating and paying its bills. If anything, there has been some positive movement toward debt reduction from both sides of the aisle. Yet we saw a pretty big dive in the major indexes.
Other explanations for the plunge force us to look abroad. The international markets took huge hits because of their own debt struggles. And those problems overseas may have been a large contributor to what we saw happen in our market Thursday.
Is it 2008 all over again?
Maybe…but I doubt it. It may feel just as scary, but the reality is that 2008 brought cataclysmic changes that brought down brokerage firms, insurance companies, automobile manufactures, etc. Entire industries were wiped out. Right now, we’re not expecting those kinds of problems. (Obviously, things could always get worse.)
How long will this go on?
Of course, nobody knows the answer to this question. But (believe it or not) I am very optimistic long-term. Lessons we are learning now will be translated into changes in our tax code and government budget (which I believe will happen). When that happens, the business climate will improve. Nobody wants the status quo to continue and again, this is a positive for everyone, regardless of your political beliefs.
Should you put everything into gold?
Every time I turn on the radio, somebody is trying to sell me gold. That frightens me. It feels like a bubble. Many people have listened to that advice. And while they have made some nice profits, the huge increase in the price of gold could all be speculation. As a result, I’m not a fan of
piling into gold at this time. Of course, I could be wrong. We could have run-away inflation and see further spikes in the price of gold, but I just don’t think making a big investment in gold is prudent right now. But you’re an adult. You can decide for yourself.
So what are the secrets of investment success in a situation such as we have today?
Given the market’s current action, are you doing anything differently? Are you pleased with your investment approach? Why or why not? What do you see happening over the near term and why?
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I’d like to think that the main reason this particular dive won’t be a 2008 repeat is because, by now, most of us have learned our lessons and people and companies alike are making smarter financial choices. However, that’s not really realistic. To an extent, I think most of us have tightened up and stepped back to take a good look at our own personal finances. However, I believe those buying into the gold craze are a prime example of the reason my generalization can’t be completely true.