With the stock-market declines and fluctuations since the fall of 2007, is it possible that we are repeating the 1930s Great Depression? Some observers have compared the present-day situation to the dreary 1930s Great Depression.
However, many people do not realize that the 1930s actually contained one of America’s most powerful bull markets. The U.S. stock market suffered a severe downturn from the October 1929 crash through June 1932, with the Standard & Poor’s Index losing nearly 83%. But during the summer of 1932, when things looked bleak with millions out of work, the market began a powerful rally over the next four years.
The 386% increase in the S&P 500 helped investors that remained fully invested recover most of the losses they suffered at the beginning of the decade. However, this rally did not proceed without volatility—there were plenty of corrections along the way.
Analogies can be dangerous. There is no way of knowing whether this comparison to the 1930s is legitimate. The future is always unknowable. Is there a way to be a good steward of our investments without placing everything into cash?
We believe there is. First, whatever you need in the near term should not even be in the market. This money should be in cash equivalents in a bank account, a credit union or in U.S. treasury bills. It is safe from market fluctuations, it is liquid, and it will be available to meet your near-term needs.
Long-term investment money can be invested into a globally diversified, balanced portfolio of stock and bond index-type funds. These investments are not trying to beat the market but are invested into thousands of companies in an attempt to reflect the global stock and bond markets.
It is likely that with this diversification, various investments will rise and fall at different times and at different levels thorough out the inevitable market cycles. This diversification tends to temper the overall fluctuations of the entire portfolio and can provide opportunities to rebalance out of high-priced investments into lower-priced investments using periodic rebalancing.
Imagine that, a disciplined investment process that attempts to take advantage of market fluctuations without any market predictions. Seek the help of your professional investment advisor to assist you with this investment process. Although this is something you may be able to do yourself, utilizing a professional to help you may be beneficial.
For more insight, listen to Jentner Wealth Management’s weekly podcast by clicking here. Or download Jentner’s newest white papers on The Four Cornerstones of Prudent Investing and The Active Versus Passive Investing Debate.