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?