If you recall, the markets declined by about 5% in May and then again in August due in part to the possibility of the fed reducing its bond buying program.
And then yesterday happened – the Fed went ahead and started to taper the bond buying program.
Based on the past, you would think the markets would have declined, right? Wrong. They surged upon hearing the news.
USA Today has a brief article that outlines five reasons why the markets reacted positively to the news.
USA Today outlines seven common mistakes that we constantly flag for our clients. If you are close to retirement, chances you have overlooked at least one of these. We see a lot of new retirees who don’t consider inflation in their planning process. Maybe they are more concerned about long tail events, like the great recession. And they forget about the slow, ever present erosion of purchasing power that occurs each and every year.
There’s a great scene in Jurassic Park where Alan, Tim and Lex watch a stampede of dinosaurs suddenly change direction and head right toward them. What made them change direction? What made them decide that this new direction was any better?
Turns out investors do the same thing, just with their investments. As they sense other investors moving into the market, they follow. As investors move from bonds to stocks, others follow. There is a perception that there is safety in numbers. Both dinosaurs and investors tend to act as “herds”.
Problem is that it’s a misperception. Following the herd can cost investors in the end.
Remember to stick to your investment strategy and don’t follow the heard… they could be headed for a cliff and not even know it.
Stock market crashes and big economic recessions can be caused by a variety of factors. The real concern are the factors that seem to come out of nowhere; the ones that catch everyone, even the experts, off guard.
Take all this talk by the media predicting an economic downturn with a grain of salt. It’s next to impossible to predict events such as the Great Depression or the Great Recession of 2008-2009. Up until 2008, had you ever heard of a Mortgage Backed Security?
Bottom line: Your portfolio should be ready for anything at any point in time.
With the equity markets reaching all-time highs, you would think everyone on Wall Street would be dancing in the streets. Nope! They’re using this time to talk about all the reasons why we’re in for a big correction, down turn, or crash.
This shouldn’t be a surprise. It’s never clear sailing when it comes to investing. There will always be issues that make investors nervous. And the markets will always experience recessions.
But investors might forget that the markets do this funny thing when everyone is expecting the market to rise (or fall)… it might just do the exact opposite of what we expect. Despite all of the expert opinions and the number crunching, there will always be the human equation to factor in and that’s hard to capture. Perhaps all this fuss is just noise and the markets will continue to climb.
Bottom line: Your portfolio should be ready for anything at any point in time.
