Monday, July 13, 2015

Should You Get Out of the Stock Market Now?

Should You Get Out of the Stock Market Now?

Are we at the beginning of a stock market Armageddon that will grind everything to a halt? In the wake of the hoopla surrounding the situations in Greece, on the one hand, and China on the other hand, many investors are wondering whether now is the time to head for the exit. If that’s you, I don’t blame you at all. Heck, I would be scared too, just listening to some of these so-called “market experts” (notice the quotation marks) tell the rest of us without crystal balls what to expect.

So should you pull out of the stock market now, as some are suggesting? Obviously that is a crucial question – the answer to which, in my opinion, lies in one basic and indisputable fact about the stock market:

No one on the face of this planet – including your favorite media money guru, financial advisor, pastor, or member of Congress – can predict exactly where the stock market is headed. I'm sorry if you thought otherwise, but the stock market isn't a predictable thing. As an investor, you must understand this fundamental fact in order to maintain your sanity as you invest your hard-earned money. The only predictable thing about the stock market is that it will fluctuate – sometimes it goes up and sometimes it dips.

While it is true that certain events do impact the market, no one can actually predict the specifics of those events, let alone the extent to which they might impact global financial markets. Keep in mind that all these “experts” offering their interpretations of what is going on in Greece and China (or any other event in the past or future, I might add) come after the fact – as in, at the end of the trading day, week, month, quarter, year, decade, etc. Who couldn't come up with the perfect analysis of what happened after-the-fact? On Main Street, we call it Monday Morning Quarterbacking for a reason.

Take the past several days, for instance. One moment Greece and China are pulling the stock market into another crash. The very next moment,  the market is back in the green because Greece and China aren't that big of a deal. Seriously?

Don't get me wrong, though. I'm not implying that you should just throw your money into some stock portfolio and hope for the best. There is such thing as an efficient stock portfolio that is built based on sound principles, including recognizing that the market will indeed move up and down due to situations and circumstances beyond your control. I believe it behooves every investor to have a carefully crafted and properly diversified global portfolio, with true negatively and/or low correlated asset classes. And then to re-balance it when necessary.

Interestingly enough, there's overwhelming agreement in the financial planning community that this is precisely what a prudent investor should be doing. But in reality, most so-called financial advisors seem more focused on selling the next hot mutual fund or stock, rather than on keeping investors focused on the fundamental principles.

I don't know what the end game will be in Greece or China. However, this much I can tell you. When investors panic, they tend to make the wrong moves with their portfolios – and some pay for those mistakes for the rest of their lives. The fact is that whether Greece, China, or any other country goes down or not, if you don't have an efficient portfolio and a disciplined advisor, any significant hit could destroy your wealth.
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