Investors Have To Know When

If You Don't Know When, 

You Are Gambling & Will Lose!!

by: Brendan Magee

I was listening to a radio commercial today about how investors can crash-proof their portfolio. In essence, invest in something and the investor's money will never experience any stock market losses. Oh, if we could only continually experience double digit returns and never see a statement with a negative return! Isn't that every investor's dream? Invest without any fear what so ever!

So on the commercial one of the firms clients starts talking about her experience with the system. Being a professor with all her education, certainly she will add credibility to the firm's message. She talks about how "She knows there's going to be a crash." She has seen it happen in the past. So here's the truth, she is right. There will be a crash some day. If you live long enough, you will see several stock market crashes. If you have been investing for just the past 15 years, you have experienced two crashes.

What the professor fails to grasp about her assertions about the market is this, she doesn't know when the crashes are going to take place. She doesn't know how severe they are going to be. She doesn't know how long the crashes will last, and she doesn't know when the market will rebound. Without having that information,she and any other investor who makes investment decisions based on a prediction about the stock market is speculating and gambling with their money, not investing it, and there is a heavy price to pay for imprudence.

So let's say you were back in 1999. The stock market has just been through an incredible five year run and, as this lady says, the market is going to crash. You agree and feel the decade of the 2000's is going to be nothing but a huge bear market (You'd have been just about the only one), and get rid of every stock you own and put it in guaranteed investments. Here are the rates of return of a few asset categories and the returns you would have missed out on from the year 2000 through 2014

U.S. Large Company Stocks      4.24%

U.S. Large Cap Value Stocks    7.84%

U.S. Small Cap Stocks              11.50%

U.S. Micro Cap Stocks             11.78%

U.S. Small Cap Value Stocks     13.95%

(Please know that investing involves risk and the use of these return figures in know way guarantees these returns will occur again in the future. Please consult a professional before making any investment decisions)

Remember as far as many experts were concerned the decade of the 2000's was a lost decade for stock investors. These numbers tell a different story, and you would not have benefited from them one bit, if based on a feeling that the market was going to crash, which it did twice and still produced these kinds of returns, you took all of your money out of stocks.

The point here is this. There three kinds of people that make predictions about the stock market: Those that don't know, Those that don't know they don't know, and those that know darn well they don't know, but get paid big bucks trying to convince you they do know! (I wish I invented that saying, but since it fits, I am going to borrow it from Professor Burton Malkiel) As enticing as it may be, stay as far away from people making predictions about the stock market as you can. You and your portfolio will be glad you did.

Brendan Magee is the founder and president of Inevitable Wealth Coaching. With any questions or comments go to brendan@coachgee.com or call 610-446-4322.