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Predicting the Market Crash…Or Not.

I have been in this business long enough to know one thing.  I cannot, with any consistency, predict where the market is headed.  And here’s what else I have learned, almost no one else can either.   There have been a few prognosticators who got the right call that one time.  The Big Short by Michael Lewis famously chronicles a few prescient investors. I would argue that these are simply the outliers.  Market predictions are far more often wrong than they are right.  And I think that’s okay.  More on this below.

 Contrary to my children’s belief, I did not use a stone tablet and chisel to take my first industry exam, the Series 7, back in the ‘80’s.  I did however, use a #2 pencil while sitting in a large university lecture hall.  Unlike today, I had to wait 6 weeks to get the results in the mail.   

The year I took the test, the market eked out a positive 5.81% for the year (S&P 500) after the Black Monday crash in October.  It followed that with 2 more strong years of performance.  The nineties cranked along with 9 of the 10 years in positive territory.  The internet bubble, of course, popped and led to 3 consecutive negative returns.

More positive returns followed in the 2000’s as the housing bubble began to build.  “No docs” and “liar loans” came into vogue.  Flipping houses, especially condos, was widespread.  Ultimately, it lead to the Great Recession.  $11 trillion in household wealth evaporated.  Nearly 2.5 million homes are still under water.  Here’s an interesting article from a Wall Street Journal reporter, who only recently was able to sell his home at a loss:  My 10 Year Odyssey.

So why do I think it’s okay that market predictions are often wrong? It’s because I don’t believe you should pay any attention to them.  If you are an investor, not a trader, not a gambler, but someone who wants to increase their wealth through investing you should ignore predictions.   The stock market, i.e. S&P 500, has returned approximately an average annual return of 10% over the last 90 years.

The best thing you can do for yourself or your family is to have a plan.  While I advocate having a full financial plan developed in collaboration with a CERTIFIED FINANCIAL PLANNER™ professional, it is not the only way to accomplish it.  For a “do it yourself” investor, there are plenty of online tools that can help you get started. 

A true DIY’er will have the confidence to go it alone and can succeed.  If that’s not you, ask people you trust for referrals to advisors.  Make sure you understand how they get paid and what your expenses will be. 

To become an investor or become a better investor requires some self-reflection.  What are your goals? What is your time horizon?  How do you feel about risk?  Will a market downturn cause you to lose sleep?  All these questions and more will help to determine suitable investments and the composition of your portfolio. 

Having a plan should alleviate some of the anxiety related to the market.  Remember, the market goes up and down, the only thing you can control is whether you have planned for it.

As always, feel free to share with others and make suggestions for future articles: peter.oneill@fiduciamwealth.com

Peter O'Neill