Is the stock market over the hill? Should you call it a day for equity investing? Lots of people are writing off the market completely…but not me. There are two reasons for this:
The first reason is that the market isn’t as terrible as it seems. The second is that the system is still working. First, let’s talk about emotions.
I don’t know about you, but to me it really feels like it’s been a terrible year. You might share the same feelings. In fact, I bet it’s been as much an emotional roller coaster ride for you this year as it was in 2008. That was indeed a terrible year for investors – the S&P 500 lost close to 40% of its value.
And my gut tells me that many people feel as bad this year as they did back in 2008.
This year, the market is down too…but only by about 5%.
Don’t get me wrong. I don’t celebrate being down “only” 5% – but I think it’s really important to check our emotions and how they square with reality. (This is especially hard when you are retired and you depend on your investments to create your retirement income. But if this describes you, a reality check is even more important.)
And while I don’t expect you to celebrate being down by 5%, I suggest that all of us consider our returns in context. It’s OK to make a decision about your investments because of a loss of 5%. It’s not OK to make a decision about your investments because it feels like they are down 40% when they are actually down 5%.
That’s the emotional component.
Let’s go on to the second reason. Let’s talk about the system and about change.
I heard a commentator on the radio report that 40% of Americans think our country is in permanent decline. I understand that feeling, but I think it may be premature to call it a day for the United States of America.
Our economy has serious problems. We are plagued with high unemployment, debt and government spending (to name a few). But let’s not forget that come the election in November, things could change dramatically.
What if the people we elect in November:
1. Strictly limit government in size
2. Cut back wasteful federal spending programs
3. Allow the free market to direct resources
4. Reduce taxes
This has happend before with fantastic results. It may happen again.
The engine of economic growth in America is business. And at this point, business is afraid to hire people…so they don’t. They’re afraid of higher taxes, more rules and tougher regulations. But if we elect people who understand this and mark economic growth as a priority, things could shift fast.
Already, there have been a few politicians to embrace the idea of smaller government, lower taxes and less spending. They’ve taken actions and turned the situation around in their respective states.
I’m trying as hard as I can to stay out of politics here. And I don’t care what party a person is from as long as they take action to do the four things I mentioned above.
We’ve seen how drastically our economy has been hurt by the wrong policies instituted over the last several administrations. But we should also remember how quickly our economy improved once the right policies were put in place.
Again…I’m looking at this and commenting only as far as the market is concerned. I’m not suggesting you vote one way or another. I’m also not suggesting that the stock market trumps social issues.
But there is no question that if our government does take these steps, the market will likely do quite well. We may have gotten a taste of that last week.
When House Republican Leader John Boehner spoke about these four steps, the market cheered and went up over 100 points. I’m not saying the market will do well. I’m not saying that the government will take these actions either.
I’m simply saying that these steps are doable and possible.
To pretend that the market has been much much worse than it actually is and/or to ignore the possibility that things can really change for the better is irrational, untrue and unrealistic.
I am not a buy-and-hold-investor. I believe that it’s important to have a proactive approach to investing. But no matter how you invest, I believe it’s a mistake to give up on the market.
How do you feel about the future? Are you hopeful? If so…why? If not…why not?
Kat says
January 17, 2014 at 4:17 AMI am in agreement with commenter A123 on the notion of wasteful government spending: “Which ones? One man’s wasteful spending is another’s essential program?” Much of the government’s spending is in the military, building war machines. Yeah, that might be good for some, economically, but at what cost to human life overall? I prefer that the government divert much of that money into education, preserving nature and wildlife, raising the minimum wage and cleaning up our energy issues (like using wind and solar instead of coal and nuclear, just for starters). So I choose to vote for leaders who also have these priorities. In short, I do not consider government spending for education, assisting its workforce by providing a livable wage, preserving wildlife and cleaning up the environment to be wasteful uses of money.
Feel free to disagree, of course; I’m just chiming in with my heartfelt notions. 🙂
Neal Frankle, CFP ® says
January 18, 2014 at 11:14 AMThanks Kat.
Shaun says
September 2, 2010 at 6:16 PMWhile I’m not a huge fan of index funds, I am a fan of this being one of the best times to invest we’ve seen in a few years.
My stock picks are relatively boring, underpriced natural gas distribution companies. I’m still researching which I’ll pick, but I love them for their boring income status, and because they’re really cheap right now, just like the overall market.
financialwizardess says
September 1, 2010 at 4:29 PMI am going with the belief that once the election in the Fall clears out some members of congress, that businesses and private investors will see some hope and we will begin to see a turn in the economy. Unfortunately, I think that will also trigger some serious inflation, that will also not be good for your portfolio, but hey, why not look on the bright side. I think unemployment will go down in 1Q2011. 🙂
Al23 says
August 31, 2010 at 11:08 AMAgree that you should be in the market and if so, index funds are the way to go. but whats up with this list?
1. Strictly limit Government in size
And this is gonna help how? without Gov’t spending these last few years we’d be over a cliff right now. Any decent economist knows this.
2. Cut back wasteful Federal spending programs
which ones? One man’s wasteful spending is another’s essential program.
3. Allow the free market to direct resources
The unregulated free market did real well in 2008. Almost wrecked the entire economic system. Free enterprise is great, so is proper regulation.
4. Reduce taxes
And increase the deficit even more. We have the lowest taxes in the western world. We should be raising taxes. You deficit hawks can’t have it both ways.
Neal@Wealth Pilgrim says
August 31, 2010 at 11:38 AMAl23, Not trying to get in a shootin’ war w/you friend but….
1. Many people argue that overzealous Gov’t got us deeper into a whole. I don’t agree that your general comment on all decent economists agreeing.
2. Wasteful Federal spending.
If you don’t agree that the Government wastes money, I respect your opinion. I just don’t share it.
3. The market was not free or unregulated in 2008. Again, many intelligent people argue that it was Government regulation that made the mortgage crisis as bad as it is.
4. Reduce taxes. Many economists argue that reducing tax rates increase revenues for the government because it encourages more business.
Anyway, I do respect your knowledge and informed opinion. Thanks.
Kevin@InvestItWisely says
August 31, 2010 at 6:34 AMHi Neal,
I remain optimistic for the medium-term future. The power of technology and the free market has overcome even the worst predations of government over the last century, and I believe that these years will be but a short-term blip looking back in 15-20 years from now. I have a pretty long outlook, so I am ok with investing in the markets.
Leigh says
August 31, 2010 at 4:26 AMMost definitely people should be investing in index mutual funds right this minute. Emotion should never be a part of your investing strategy and if it is, you’re sure to lose out to some degree.
Right now the market is down. I can buy a lot more shares with my money than I will be able to in a couple years when the market bounces back. Which it will. The market is a cycle just like the sun and the moon, the seasons, the tide….
The key is to squirrel away your pennies, invest them in a basic fund with a low cost, and then DON’T LOOK! Your investments aren’t a sprint, they are a marathon. It’s like staring at a garden you just planted and wondering if the tomatoes will be on your dinner plate tonight.
Keep your investing simple. Buy and hold. Better yet, buy and ignore.