Comment on This Week's Market Volatility
As long-term clients know I rarely comment on market activity at any given time. What markets do over the short-term is irrelevant to my client’s long-term goals. We are not going to change our plan due to market fluctuation. The only reason to modify a plan is if goals or financial circumstances change.
Next week I hope to release my 2nd in a series of articles entitled the “Bear Market Survival Kit”. The point of this series is to help you stomach the inherent market volatility and our apocalyptic news media by providing perspective and education. Since the markets are not cooperating by waiting for my series to be completed I felt I would provide this quick pick-me-up.
I am aware that for some of you nerves are still frayed from the 2008 market crash. If this week’s downturn is bringing back any of those fears then I suggest you take a breath and step back from the situation to take a look at the bigger picture. Bottom line is our economy is still on the path of returning to health. For example, it was announced yesterday that 290,000 new jobs were created in April. The recent trouble in the markets is concern about the ability of Greece, Portugal and Spain to repay their debt. You may recall that a similar situation occurred back in Jan when the market fell 8% after news broke that Dubai would not be able to repay its debt. If you do not recall this I suggest you won’t recall this Greece situation 4 months from now either. Back in January everything was sorted out and the market ran back up. I’m not trying to belittle this situation and I am not saying that the market won’t fall further in the near term. It may or it may not. This is unknowable. But over the long term I wouldn’t worry about the US or overall world economies or the markets.
Here are a couple articles to give you a larger perspective on things. It’s always best to stick your head up out of the weeds once in a while to see which direction you’re heading. First is a listing and explanation in Wikipedia of all of the recessions we’ve experienced in the US since 1790. There have been 47 recessions. I’m sure you don’t believe that this Greek debt “crisis” (yes, the news media has a new crisis to trumpet) is going to be the catalyst that causes our economy to topple permanently. Our economy has bounced back the last 47 times in a row. It will continue to bounce back this time as well. If you do have the belief that this isn’t the “fall of Rome” then you must believe we will survive this recession and eventually get back on track. Just keep reminding yourself this: market and economic declines are temporary, the permanent trend is UP.
The second article is a very big step back from the current situation and argues that this century, like the twentieth, can be an American one. It’s a March Time Magazine article called “The Next American Century” by Andres Martinez of the New America Foundation. Martinez finds that “times of economic dislocation only accentuate America’s competitive advantage – its nimbleness and adaptability”, and that “The dollar’s status as the world’s reserve currency has only been bolstered as the Greek debt crisis…”
My last piece of advice on how to weather today’s market sentiment is to not watch CNBC. I’m serious. That channel is for short-term traders. You don’t care what they say on that show because they are giving advice on how to supposedly outsmart the market in the short term. First of all, you can’t outsmart the market in the short-term on a regular basis. But most importantly your plan is long-term so nothing they say is relevant or helpful to your personal financial planning, regardless of how well reasoned their arguments. Let all the short-term timers fight it out every day. You remain a passive long-term investor and simply capture the net result of all their buying and selling. Over time the market will continue on its permanent upward path and you will be along for the ride.