You are not alone if this question has crossed your mind in the past month or two. After a spectacular year for US stock markets in 2013 and a five year period where the Dow Industrial Index has doubled and the S&P 500 Index is up 120%, many investors are left with an uneasy feeling.
A recent survey published by Bankrate.com revealed that 73% of respondents are “not more inclined to invest in stocks.” This was the third annual survey in a row that individual investors expressed a negative view of the stock market. This seems to suggest that many Americans are wary of investing in general, in spite of the impressive gains by the US markets.
It is not surprising that those who have been invested are uneasy now. Nor that those who have not yet invested in this bull market are still disinclined. Yes, in these past five years we have learned of monumental Ponzi schemes which defrauded investors of billions; Wall Street money managers convicted of insider trading; and recently Michael Lewis’ book “Flash Boys” where he asserts “the Market is rigged in favor of high-speed electronic trading firms.”
However, perhaps the most important reason for investor’s discomfort is best explained by behavioral science. Those of us who have been investors for ten years have experienced two very serious downturns which together are more pronounced than in any other period in our lives. The technology bubble which burst in 2000 resulted in a 45% market decline over less than two years. Then only eight years later, from late 2007 through March 2009, the Great Recession resulted in a 57% decline. The reluctant investors today remember all too well those market collapses and some remember them coming “out of nowhere.”
Are markets about ready to fall significantly again? It is easy to give way to emotions and to overreact to the daily mix of headlines. The most important thing of all is for investors to maintain a portfolio of diversified investments that is matched to their personal risk tolerance and designed to pursue their long term goals. With that in place, the short term ups and downs of the markets can be less impacting. The large market movements are another matter. However, they do not come and reach their low without the ability to take action.
Presently the financial press is full of opposing views on the near term direction of the US stock markets. Our view is that we are not at the brink of another major decline. The majority of economic data and the latest view of the Federal Reserve, as reported Wednesday April 30th after their latest meeting, indicates that the US economy has “sufficient underlying strength to support ongoing improvement in labor market conditions.” Corporate earnings, consumer sentiment, and leading economic indicators all point to good and better conditions.
Rest assured that you have us watching for you and in so helping you to live life with confidence in your investments.
Diversification neither assures a profit nor guarantees against loss in a declining market. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.