Europe is still slowing and Greece is still in the news over there. The US is likely going to have a slow or negative quarter due to the lower productivity in the Northeast after Hurricane Sandy and seasonal and ongoing Fall season storms buffeting that region complicating clean-up and recovery.
Note, I’m not predicting anything … simply stating the obvious. So what about the markets? All of this is already priced into the markets … thus … trying to predict what is going to happen in the markets is just a reaction to emotions … and fear is not a reliable emotion to manage wealth prudently.
We face the same problems as before … the difference now? The distractions may be over … and perhaps solutions may be taken to address the problems. Signalling a bit of urgency to politicians through market activity is probably a decent wake up call for them to finally take more than political steps. I suspect not much may be resolved in less than 2 months so it should come as little surprise if some extensions are put into place.
A rational investment philosophy* should not be based on fear (or greed when times are good).
*Some fundamental concepts of a rational philosophy are discussed in the Popular links box in the right navigation bar.
Remember that market declines in general to 5% are considered ”noise,” 5 to 10% are called “dips,” and your emotions may be getting the best of you over market noise and dips … (10 -15% are considered ”moderate corrections,” 15-20% are “severe corrections,” and over 20% is called a “bear market.”) Bull and Bear Markets are defined as general market trends either up or down.
Funny, nobody gets concerned when things seem to be going well and markets go up! However, that’s probably the best time to reevaluate things rationally. Fear is not a good emotion for decision-making because, when it comes to markets, that is usually when you realize real loss instead of temporary loss … as long as you own a properly constructed portfolio, it may still go up in value when recovery comes around … but you need to wait for it.
That’s why having money properly positioned for WHEN you need to spend it is very important. If you don’t need to spend it yet, then it may be okay. This is why I’ve done lots of research into measuring how long money may last during retirement.
What can you control during good or bad times? How much you save … and how how much you spend! When you start and stop saving and spending are also under your control. The economy and markets? Not under anybody’s control really except those are results of all of our decisions added together.
Moral of the story? If your nervous … let’s talk. Often time just verbalizing things helps. This doesn’t mean having to make a decision or change things. Sometimes just getting something off your chest helps to sleep better. The same ingredients may be mixed differently for less volatility (but that also means reducing the upside potential too).
When would it really be bad? When there are no rush hours (because there are no businesses anymore for people to drive to work to. As long as rush hours still exist … and you have a prudent plan for your goal(s) … we are okay as a whole. Thinking that you can simply go away and come back when everything is better is unrealistic because it has always been problematic recognizing when everything is okay, until it is through hindsight looking at the past (and then the moment has been missed).
Yes things could be better. But until they are … we can only work with the global economy as it is … at anytime. Ironically, when it felt like things were better was precisely when we really should have been concerned about what we were missing! The internet bubble and real estate bubble really hid issues from us. We are actually probably better off having our guard up!
We have been through two big market downturns … 2001/2002 and 2007/2008. Portfolios have held together. There are still rush hours. My retired clients are still retired. So … as I said when I started this blog … Now that the distractions of the elections are over … what’s next? Things are not that much different from before! We, the markets, and the global economy are still here. No prediction – however it is likely that further rough times are ahead until excess borrowing at all levels has made its way through the global system … more ups and downs … but that has been what any market has done since they began millenia ago.
For more insight into the topic of Panic … click on the Panic link in the Topics box in the right side navigation bar.