Timing The Market

As always, I must state that all of the information in this article is opinion and speculation and not a particular endorsement of the market, any market segment, or any particular investment. I am not an investment professional; I’m just an average person. For any investment advice you should do your own research and consult a professional.

Many people that I’ve been speaking with are quite concerned about the market right now. In general, people think that the market is going up too much, too fast. Understandably, there is some skepticism because of the fact that there has been such a dramatic increase of all the major indexes over the past several months when compared with gains over the larger, but more recent time-periods like 1 or 2 years.

Getting Diverse

Of course, one of the major insulations against personal problems when it comes to finance is the ability to diversify your assets into other asset classes and in other parts of the world. But this advice doesn’t just work for personal investors dealing with their savings or retirement monies; that advice is applicable across the board.

What Goes Up

That saying: “What goes up must come down” is true when it comes to gravity, but is not always true for the stock market. Indeed, over time, since 1929, the stock market has gone up considerably when averaged out year over year. So why is there so much concern about recent increases? Strangely, there is a strong comparison being made about the increases we are seeing now and those that happened prior to the 1929 crash.

Is a crash imminent? Possibly, but I don’t think so. Is a correction likely? I think so, yes. But am I getting out? No. Statistics tell me that over the long term, the market is likely to continue to see significant increases. Most investors when it comes to retirement know this as well.

I doubt that we are going to see the kind of “run” that we saw in 1929 where most people who were investing were rich people. Rather, IRA and 401K investing will continue to occur even in a down turned market. People who invest for retirement know better than to try to time it. So, I believe that any huge correction will be weakened by continued retirement account deposits.

Over Diversified?

Of course, as I stated, many large hedge funds and other institutional investors are also diversified. This means that there is significant cross investing around the world, and it is hard to trace out who is invested in what, where. But this interconnected series of investments by large banks, governments, and corporate entities makes it very difficult for too much to happen without a ripple effect taking place.

The ripple effect is currently being seen now in some segments of the stock market as the shaky real-estate market has caused some people to go into foreclosure on their sub prime loans. This is just one example of how globally interconnected all of the financial markets are. But in the end, while it can certainly make things weaker, I feel that it also provides a good deal of strength since it seems that under each rope securing our assets, there are others to grab on to if things get bad and the proverbial rope snaps.

Stay The Course

Making your financial plan and doing your best to stick to it, but only adjusting slowly, over a period of time seems to be the best defense in this uncertainty. It is quite likely that a dramatic change could result in a huge mistake.