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Four Words You Shouldn’t Believe

Four Words You Shouldn’t Believe

These are the words that make investors irrational.

 

Provided by MidAmerica Financial Resources

 

“This time is different.” Beware those four little words. They are perhaps the most dangerous words an investor can believe in. If you believe “this time is different,” you are mentally positioning yourself to exit the stock market and make impulsive, short-sighted decisions with your money. This is the belief that has made too many investors miss out on the best market days and scramble to catch up with Wall Street recoveries.

   

Stock market investing is a long-term proposition – which is true for most forms of investing. Any form of long-range investing demands a certain temperament. You must be patient, you must be dedicated to realizing your objectives, and you can’t let short-term headlines deter you from your long-term quest.

  

If stocks correct or the bulls run away, keep some perspective and remember how things have played out through some of the roughest stretches in recent market history.

   

In 2008, many people believed the market would never recover. The Dow dropped 33.84% that year, the third-worst year in its history. That fall, it lost 500 points or more on seven different trading days. Some prominent talking heads and financial prognosticators saw the sky falling: they urged investors to pull every dollar out of stocks, and some said the only sensible move was to put all your money in gold. It wasn’t unusual to visit your favorite financial website and see a “Dow 3,000!” pay-per-click doomsday ad in the margin.1

 

The message being shouted was: “This time is different.” Forget a lost decade, it would be a lost generation – it would take the Dow 10 or maybe 20 years to get back to where it was again, the naysayers warned. Instead it took less than six: the index closed at 14,253.77 on March 5, 2013 to top the 2007 peak and went north from there. The bear market everyone thought was “the end” for Wall Street lasted but 17 months.2,3

 

Where is the Dow today compared to fall 2008? Where are the S&P 500, the Nasdaq, the Russell 2000 compared to back then? And how has gold fared in the last few years? While the Federal Reserve has played a significant role in this long bull run, record corporate profits have played a major role as well.

 

The stock market has seen remarkable ascents through the years. From 1982-87, the S&P 500 gained more than 300%. The 1990s brought a 9½-year stretch in which the S&P rose more than 500%.2

   

A recovery from a Wall Street downturn usually doesn’t take that long. The bear market of 1987 – the one that came with Black Monday, the worst trading day in modern Wall Street history – was over in three months.  The bursting of the dot-com bubble set off another bear market in 2000 that lasted a comparatively long 30 months – definitely endurable for an investor focused on long-term goals.3

 

What happens when investors believe those four little words? They panic. They sell. If they are mostly or wholly out of equities when the bulls come storming back, they run the risk of missing the best market days.  

    

We’re looking at a turbulent stock market right now. This is the time for patience. Withdrawing money from a retirement savings account (and the investment funds within it) might feel rational in the short term, but it can be hazardous for the long term – especially since many Americans haven’t saved enough for retirement to start with. A recession is a few quarters long, not the length of your retirement; a bear market may right itself faster than presumed, and you want to be invested in equities when it happens. If you have questions about your money when jitters hit the market, turn to the financial advisor you count on as a resource.

        

MidAmerica Financial Resources may be reached at 618.548.4777 or greg.malan@natplan.com.

www.mid-america.us

   

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

    

Citations.

1 - djaverages.com/?go=industrial-milestones [10/7/14]

2 - nj.com/business/index.ssf/2013/03/dow_hits_new_record_regaining.html [3/5/13]

3 - nbcnews.com/id/37740147/ns/business-stocks_and_economy/t/historic-bear-markets/#.VDSESBbgVUI [10/7/14]

 

 


The Market’s Wild Swings

The Market’s Wild Swings

A hugely volatile week concludes. What’s next as earnings season gets underway?

 

Provided by MidAmerica Financial Resources

      

During this past trading week, volatility ruled Wall Street. In fact, stocks either fell or rose 1.5% or more on three consecutive trading days. That had happened only 54 times since 1928.1 

   

What prompted these ups & downs? Several factors.  The International Monetary Fund just cut its global and Asia growth forecasts for 2015 and stated that the eurozone could soon slide into another recession. European Central Bank president Mario Draghi wants easing to stimulate the eurozone economy, yet German finance minister Wolfgang Schäuble doesn’t. The DAX and CAC 40 (the benchmark indices of Germany and France) have both corrected since spring.2

 

So has the Russell 2000, which wrapped up last week down 13% from its peak in early March. Oil entered a bear market Thursday. Finally, the end of the month will presumably see the end of the Federal Reserve’s quantitative easing effort – which has played a big role in the market’s bull run. The S&P 500 ended Friday down more than 5% from its September 18 record close, and Friday actually saw a rare 100-point drop for the Nasdaq Composite (102.10, to be precise).2,3

       

Where might things go from here? Stocks could fall further – keep in mind that the S&P has gone more than two years without a correction, definitely an abnormality. On the other hand, fall earnings seasons have tended to give stocks a lift throughout history, so let’s hope history repeats.

    

How big a drag will Europe continue to exert on the market? Agreement between EU finance ministers would give domestic and foreign stocks a lift. If that isn’t there, perhaps earnings – the “mother’s milk” of stocks – will help guide the market back to equilibrium and gains.1

   

Perhaps the wisest words came from Cornerstone Wealth Management CIO Alan Skrainka, who told USA TODAY Friday: “The market was overdue for a correction. Not every correction develops into a bear market. Every economic slowdown is not a recession. Look for opportunities and maintain a long-term perspective.”2

             

MidAmerica Financial Resources may be reached at 618.548.4777 or greg.malan@natplan.com.

www.mid-america.us

      

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

     

Citations.

1 - bloomberg.com/news/2014-10-09/index-futures-slip-as-stocks-slump-while-oil-extends-drop.html [10/10/14]

2 - usatoday.com/story/money/markets/2014/10/10/stocks-friday/17022819/ [10/10/14]

 





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