As the market swings up and down wildly this year, and because we’re in a presidential election year, I’ve been asked a lot of questions about where the market and the economy are going. So, I thought I’d write a quick piece to give my opinion about where we are in the big picture. The following chart, which shows the last several decades and projects the next several decades, is where I believe we sit:
Okay, so this is obviously a bit tongue-in-cheek, but the point I’m trying to make is that history shows that staying invested for the long term is the way to grow your money. We should remember that and have a belief in a better future. If we don’t, then what are we living for? Optimism is the name of the game if you are a long term investor. If you are not optimistic, you should not be investing in anything: house, car, kids, career, gold, stocks, bonds, education, etc.
This leads me into a second point that is made by the Dalbar Study, an annual study about investor’s overall rates of return over a trailing 20 year span. The results, shown in the chart below, are sad: investors overall trail the market (both stocks and bonds) by a huge margin.
Why do investors consistently underperform? Because they bring emotions into the buying/selling of securities, instead of having an investment objective, staying invested and diversified, and regularly rebalancing. Clearly investments work, but investors don’t, at least not when left to their own devices. This harkens back to an earlier article where I talked about the value-add of having an advisor.
In summary: ignore the day-to-day fear mongers, be optimistic, think long-term, and allow your money to work for you!