Historically, “bull and bear” markets occur with the almost automatic expansion and contraction of the economy. The events that turn a bull market into a bear market—and vice versa—are events that economists and market analysts have studied over long periods of time. They are considered the “ebb and flow” of wealth accumulation. Bear markets are normal and are necessary—they serve to “clean up” what are considered prior economic excesses.
The Pluses and Minuses
Long-term investing is more often about the psychological aspects of managing your money and sticking to a financial strategy. It is important to understand how stock market conditions can create euphoria or fear in some people. The general rule is that market corrections will always happen. Long-term investors have seen several prior bear markets. Bear markets prepare the way for future bull markets. And, while investing carries specific risks, many of those risks become more acceptable and tolerable by remembering that investing should be for the long term.
Managing the economy is often very complex. But, the Federal Reserve Bank’s (the Fed’s) willingness to maintain low interest rates and the changing U.S. tax structure, may help strengthen the markets. We are hoping these two things continue to fuel market growth.
Stick to Your Plan
It is only natural to ask, “What’s my next move now? ” What all long-term investors should realize is that all markets whether bull or bear create opportunities—often very attractive opportunities. It is the long-term picture that investors need to keep in mind. Your original investment goals, if still unchanged, whether for accumulation for retirement or funding for college education, should be followed. Therefore, the general rule of thumb must be to continue in the same direction by maintaining a well-diversified portfolio.
The wisdom of the day is to stay your investment course and resist the temptation to become involved in trying to time the gyrations of the stock market. It would be beyond anyone’s comprehension to think that it is possible to predict when any market will turn higher or lower. Continued involvement, while using a long-term investment strategy, will serve the long-term investor far better than trying to predict the ultimate direction of the stock market by judging the emotional temperature of the investing public.
As Americans, we need to believe in our economic system and resist any temptation to abandon our financial objectives even if the moment seems darkest. While it is difficult to maintain an optimistic view during volatile and uncertain times, we must continue to hold fast, knowing that the country’s economy has the ability to rebound.
-Jared
