Did your parents ever tell you that a good education can set you free? We believe in that statement wholeheartedly and that educating others on the essentials of building a retirement plan is a vital part of our job. In fact, we spend a good portion of our time speaking at educational events both locally and nationally. Most of our talks focus on how to better manage your money, protect your hard-earned assets and efficiently plan your estate.
I, Nolan, find that most of my talks lately are discussing the current state of the economy. One question I normally ask the audience is “What do you think the stock market is going to do first — go up another 30 percent or down 30 percent from where we are at right now?” So take a minute and think about how you would answer that question. From where we are at right now, with the stock market at or close to all-time record highs, do you think the market is likely to go up another 30 percent or are we headed for a correction and the market will go down 30 percent first?
Notice that I use the word “first.” The United States has major issues it needs to address, like massive debt problems, huge unfunded liabilities and an out-of-control government. Yet, as a former Marine, I hold firm in my belief that the United States of America is still, by far, the best place to call home. So over the long run, I believe our country will get through the problems it faces and the stock market will continue to go up. Most importantly though, what do you think is going to happen first?
Now that you have your answer locked in, let me share with you what I think will happen. In the short term, it’s anyone’s guess. I say that because the stock market is beyond any one individual’s control. Political and economic uncertainty can change the stock market in a hurry, for the positive or negative. This may not be the answer you wanted, but it’s a cold, hard fact. If we’ve learned anything over the years, it is that we can’t change what is out of our control. Instead, we would like to suggest entertaining the two options below.
1. Capture opportunities for the long term and ignore short-term market predictions.
The Standard & Poor’s 500 bottomed at 677 on March 9, 2009, the end of a 17-month bear market in which the stock index fell 57 percent. A weekly survey of stock investors indicated 70 percent of them were bearish as of March 4, 2009, the highest bearish measurement ever recorded by this study (source: BTN Research and American Association of Individual Investors).
Had the average investor made investment decisions based upon what most other stock investors thought, that investor could have missed out on huge stock market gains during the past several years. Investors should not make decisions based on what others are saying and doing. Avoid the urge to just buy and sell investments based on what your poker buddy says or on the market predictions that can be found almost everywhere. Although those predictions are often made with the goal of trying to help investors, they are often wrong, as we pointed out in our recent column “2013 Stock Market Predictions.” Instead, focus on your own individual goals and objectives and make decisions on what is right for you and your family.
2. Pay attention to where we are in the economic cycle.
The current bull market for the S&P 500 reached four years in length on March 9, 2013. Of the 10 other bull markets that have occurred since 1950, the shortest duration was 2.1 years. The average duration of all 11 bull markets since 1950 (i.e., the current bull market is the 11th) is 4.7 years. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the stock market (source: BTN Research).
For investors who need current income or investors with gains in their accounts, now could be a great time to look at strategies to protect gains. Some ideas that investors could benefit from are rebalancing while times are good, putting safety nets in place with stocks by using what we call “circuit breakers” on the account or locking in gains and moving the money to other income-producing accounts. To find out what strategy is right for you, talk with a licensed financial professional.
For more information about The Retirement Guys, tune in every Saturday at 1 p.m. on 1370 WSPD or visit www.retirementguysnetwork.com. Securities and Investment Advisory Services are offered through NEXT Financial Group Inc., Member FINRA / SIPC. NEXT Financial Group, Inc. does not provide tax or legal advice. The Retirement Guys are not an affiliate of NEXT Financial Group. The office is at 1700 Woodlands Drive, Suite 100, Maumee, OH 43537. (419) 842-0550.
