It seems every day offers another reason to be anxious about stock markets: Trump, China, the direction of interest rates, negative bond yields, excessive government debt, consumer debt, Brexit, social unrest, etc. The list goes on.
As mentioned in July, I can absolutely guarantee you that stocks will take a beating at some point. Stocks can easily drop 10% or 15% on market mood swings. The next recession may well knock 25% or more of your stock portfolio value. But markets may be up 10% or 20% before that happens.
Above is my favourite table from Beat the Bank (page 112). It demonstrates how time transforms stock market gambling into pretty much a sure thing.......if you are a long term investor.
Stocks traded on the New York Stock Exchange on more than 20,000 business days over the nine-decade period from 1926 to 2015. The S&P 500 Index was higher on 54 percent of those days and lower on 46 percent of those days. But stretch out the time frame and your probability of gain increases. Gains were produced in 74 percent of the one-year time frames, 94 percent of the ten-year time frames, and 100 percent of the twenty-year time frames!
As I said in an earlier email, the key is to select the right mix of stocks versus bonds in your portfolio and to adjust that mix over time as your circumstances, goals, time frames and ability to handle risk change. Do not allow the percentage of stocks in your portfolio to be at a level which would cause you to panic and sell if the market takes a dive. I know that is easy to say and hard to do because future circumstances and your responses are uncertain. But it is important that you think about it this way.
Your questions and comments are always welcome. Just reply to this email.
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