I am going to depart from my informal rule of not commenting on the market. In part I have this rule because many other financial articles focus on that aspect of finances. Research has proven that investor behavior contributes more to long term financial success than this or that financial product.
Recent stock market activity and geopolitical events have caused me to feel my professional responsibility to you more acutely than before. It is my hope that the financial community has taken some lessons from the financial crisis of 2008, which for some seems a distant memory.
How the mainstream media reports hardly varies at all. When I read the headlines I think “Been there done that!’ At my age I am allowed to say that! We all know that the goal of mainstream media is to generate news that grabs the most eyes and clicks. For the last several months I have been diligently gathering information that does not get widely reported. After all, my responsibility to you is to give you the maximum amount of opportunities for your future success. What you do with those opportunities is up to you.
The last few years have produced a false sense of security among investors. First of all borrowing money is cheap. This cheap borrowing has caused people to take on too much debt. Even the government has noticed this trend and has taken recent measures to curb the housing market. I have said it before but it bears repeating: When the interest rates increase on your debts INCLUDING your mortgage will you still be able to make the monthly payments?
The stock market in the last few months has risen, and the reporting of that increase is very enthusiastic, such as when a certain milestone was reached. Much of this enthusiasm is based on assumptions of what will happen when the new administration in the US actually implements fiscal or monetary policy. So the increase in the stock market’s value being based on what may happen in the future is pure speculation, not founded on anything concrete such as profits, or earnings reports for example. And a few very brave investment professionals have stated that the path to more meaningful growth is to address income inequality. Millions of middle income earners having the ability to save and spend more will have a more positive effect on growth than other measures.
The excited headlines have made me very cautious and I have been evaluating your portfolios to see if it is time to rebalance. Your long term rate of return is more dependent on preservation of gains than chasing high returns.
The stock market is cyclical and will revert to its mean value at undetermined intervals. The current bull market (which is defined as a market that is increasing in value), is approaching senior citizen territory. Personally, I would rather give up the opportunity to have a higher gain and exercise prudence when others are too keen. May I stress that no one can predict the future movement of the stock market, either in months or years. But it does no good that hindsight is always 20/20, and that human nature is quite predictable.
Next blog post will discuss your financial particulars that you CAN control.