Q. I know that buying stocks and holding on for a long time has produced good results but with all the uncertainty in the world, it sure looks like a bad time to invest, even if I’m more than a decade from retiring. Am I right about that? — Kevin in IHB
A. It is great that you recognize how you are feeling, Kevin. What do you mean by a bad time to invest?
If you are asking me if the market is about to crash, making it wise to hold off, my answer is I have no idea if the market is going to crash soon, and you do not need to bet on whether a crash materializes or not to get a good result before your retirement.
The track record is crystal clear. The odds of getting a good result from owning a broadly diversified array of stocks, not a small group of individual companies, are excellent over 10 years regardless of how things looked at the start of the period. Looks can be deceiving.
Let’s try a thought exercise. Let’s pretend it is Sunday, Sept. 9, 2001, and you have a working crystal ball that accurately predicts world events but not market behavior. It tells you in two days there will be a terrorist attack on U.S. soil with thousands dead and a worldwide impact lasting for years. When the market opens on Monday the 10th, it is doubtful you would want to buy stocks. That makes perfect sense.
When the unimaginable destruction occurred on Sept. 11, markets closed for a week and when they reopened, the Dow Jones Industrial Average had its worst weekly loss since 1933 during the Great Depression. This, too, makes perfect sense. So, your crystal ball correctly predicted the event and you managed to predict the immediate reaction to it. Now what? Be honest with yourself, are you now buying stocks after this drop or fearing uncertainty?
How about after letters contaminated with deadly anthrax spores were delivered to congressional offices, the National Bureau of Economic Research confirmed the U.S. economy was in a recession, or Argentina faced a massive financial crisis and defaulted on its bonds? Are you buying, or fearful and waiting?
How about after Arther Anderson LLP, auditor for 2,300 public companies, faced possible collapse due to accounting scandals? How about after several of the country’s most well-known corporations like Bethlehem Steel, Polaroid, Kmart, and Enron go bankrupt? At the time, Enron was the largest corporate bankruptcy in history. Could you trust what any company said about their financial health?
The odds are good you were still waiting to invest. All those events happened in the six months after 9/11. What if you bought stocks on Sept. 10? Well, it didn’t take 10 years to make money. The Dow recovered in just two months and by Monday, March 11, 2002, after several ups and downs, the Dow was up more than 10% from Sept. 10, 2001.
Different characters and plot line but we saw a similar situation play out during the COVID-19 pandemic. There was a lot of uncertainty. Do you remember not knowing how deadly the virus was, businesses shutting down, and spraying things delivered to your home? This all caused a severe and rapid market drop which was followed by a recovery that occurred long before anyone would have guessed.
Even if you predict the event and the reaction to the event, to benefit from waiting you must buy when the market is down, and things never look good when it’s down. Life is full of uncertainty and while the market trends up over time, it is never a smooth ride. If you can learn to expect uncertainty and volatility in the markets rather than fear it, you have a better chance of succeeding over your lifetime.
If it were easy to determine when the market would fall, more people would do it successfully.
Dan Moisand, CFP® has been featured as one of America’s top independent fee-only financial planners by at least 10 financial planning publications and practices at one of America’s most decorated independent firms. For more info, e-mail him dan@moisandfitzgerald.com, visit moisandfitzgerald.com or call Dan at 321-253-5400, Ext. 101.
Originally published on FloridaToday. Read the original article here.