2011 | www.selectasset.com
Should I stay or should I go?

"Fear is the greatest obstacle to success"


In economic times such as these, some investors may be tempted to take the money and run or to make drastic changes to their portfolios.  Since the year 2000, we've been experiencing a secular or long term, bear market, delivering low returns on investments.  With the stock market seemingly dropping almost every day, it's easy to allow fear to cloud the vision of our long term goals.  Add that to the challenges facing our global economy, and some have almost reached panic level.  So could there possibly be any reasons to stay in the market?  Well, yes, in fact there are.

  • Ebb and flow…

 The stock market is not static.  It does not continue on an eternal upswing and it will not plummet into oblivion.  It is cyclical, and has natural ebb and flow or in other words, constant fluctuations. The short term fluctuations within long term trends are called cyclical trends.  Panicking when the market is down often leads investors to get out, and sometimes unwisely so.  Even now, at the tail end of this secular bear market, a market trend characterized by a general decline in returns over a period of up to 25 years, investors fail to remember what history has shown.  This current cyclical bear market began in 2008, but before that we experienced a near 7 year bull run following the 2 year down market in the wake of September, 11, 2001.  Prior to that, we experienced a cyclical bull market spanning nearly the entire 1990’s following the crash of 1987.  So, for investors with a medium to long term time horizon, it's important to remember, then, that the bull will return.

  • Long term returns…

 Speaking of the long term, history has also shown that there is no better investment than one related to equities to produce the highest returns over the long term.  Sure, there are "safer" or less volatile investments.  None of them, however, have produced a 11% rate of return, which has been the long term average for equities.   Simply put, if you plan to use the money invested in the near future then you should use lower volatility solutions. However, if you are planning to use the money for long term goals/needs shouldn't the "volatile assets classes" be considered as most appropriate?

  • Risk and reward…

 Do a quick Google search of low risk, high return investments, and you'll find that there aren't many out there.  Sure, other than stocks, there are some investments that can produce a decent rate of return.  It is common knowledge, however, that the higher returns are acquired by increasing your risk.  Why?  Simply put, if a low risk investment produced a high return, everyone would want to invest in it, right?  This would, in turn, drive down the rate of return, just as a high risk, low return investment would have the opposite effect thus increasing returns.  Both have the effect of balancing out to a level of return that the market feels is comparable to the level of risk taken.  Low risk, low return.  High risk, high return.

  • Economic threats are not a new phenomena…

 Throughout history, there have been many threats to the global economy.  People were fearful. But history has also repeatedly proven that those who took a logical view toward these threats and stayed the course have been the ones to come out ahead.   The Great Depression, the Korean War, the OPEC crisis, the dot com crisis, the Iraq War, the War on Terror, natural disasters, political instability, you name it.  Each has dealt a blow the world financial market, of course.  But the market has always bounced back.  Often times, stronger than ever.  Remember, the world has always had major challenges and economic problems.  Always.  Past, present and future.   

  • It's not a loss . . .

 Watching the market prices drop can be hard.  Many of us frantically check our portfolios and experience that sinking feeling of defeat.  But remember, it's not a loss until you sell.  When your investments are down, you only realize the loss if you actually sell. If you stay the course, you haven't really lost anything, and you still have the chance to recover.
The bottom line is that there are opportunities for solid returns in a bear market, it just takes a little more work,  patience,  diversification and  proper  management. Throwing in the towel just might cost you a ride on the bull...