Are you worried that investing now will put you at the top of the market? Are you reading and listening to people on TV who are telling you that you shouldn’t be in stocks or that the next recession is around the corner? Let’s take a look at whether you should be paying attention to the financial porn industry that is full of predictions of doom, but often lacking in substance.
What Does it Mean When We Hear Predictions of Doom from Analysts in the Media?
“If it bleeds it leads” is the driving mantra of the news conglomerates these days. Fear based news preys on the anxieties we all have and then holds us hostage. This is no different in the financial media business either. After the recession of 08-09 some analysts rose to fame by having “predicted” the crash. In some cases, it was just the demonstration of the broken clock being right twice a day.
If you just predict bad things all of the time, eventually a bad thing will happen and then you can say, “AHA! I knew that would happen.”, but, in the end, you just played the odds. I have seen this become a recurring theme since the last recession. Since 2010, there have been predictions of the next recession, predictions that people should move to cash, and predictions that a market crash will happen again. The S&P 500 return over the last 5 years (dividends reinvested) is 65.90% and 244.38 % over the last 10 years, as seen HERE. It would surely have been a shame to have missed this bull market.
Would you like some examples?
In 2011, David Rosenberg is quoted in Fortune saying, “Another recession is coming and soon.” The article goes on to state, “Rosenberg, a longtime bear on the economy and the stock market, now says he is 99% sure we will have another recession by the end of next year.”
On May 25, 2012, Marc Faber, an investment advisor and fund manager, went on CNBC and said, “I think we could have a global recession either in Q4 or early 2013. That’s a distinct possibility.” When asked what were the odds, Faber replied, “100%”.
On March 31, 2013, David Stockman the former Reagan budget director, wrote in the New York Times saying, “When the latest bubble pops, there will be nothing to stop the collapse. If this sounds like advice to get out of the markets and hide out in cash, it is.”
Here is a MarketWatch article stating that there is an 87% chance of a stock crash by end of 2013 with a host of people making dire predictions.
I have dozens of others with people waiting for their broken clock moment. What I can tell you, historically speaking, is that another recession is likely and it might be in a month, a year or a decade. I can’t tell you when this will happen and neither can a lot of people who get paid to talk about it. It is just how the economy works.
There will also be dips in the market, which, is not a bug but a feature in the market! You cannot have expectations to earn strong returns, over the long term, in securities without having some short-term risk. If the market never went down you would never receive the risk premium you get from stocks.
If you need to spend your money tomorrow or if you are living on your investments in retirement, you should not be as aggressive in your investments as someone in their 30’s and 40’s. Your time horizon and risk tolerance should dictate your investment strategy, and should not come from some talking head on television telling you that the world is ending tomorrow.
It is likely that the market will go down again. How quickly and how severely is anyone’s guess. There may come a time when the market stops its methodical march upward that is has been on for the past 100 years. There have been plenty of dips along the way. I would recommend not letting the news cloud your vision for your long-term plans and to invest in line with your own personal time horizon and risk tolerance.