Stock Markets are at Historical Peaks
Stock markets fluctuate widely. Fast forward to today. Stock markets are at historical peaks. Are people going to stay in the market celebrating their ‘gains’ until the next crash? Do folks realize these are the ‘gains’ they will grumble about losing at the upcoming downturn? Are there solid fundamentals in global economies to support stock market exuberance? No; most economies are anemic, merely meandering along.
The European Union is in crisis; it is trying to solve problems by throwing ‘bailout’ money at individual countries. More money does not solve problems. Look at the amount of money the USA has spent trying unsuccessfully to bolster its economy–taxing, borrowing, spending do not work. Money is the means of exchange; it’s a bridge between the champion or problem solver and the opportunity, challenge, or problem.
Spendthrift governments should realize they must stop running deficits, cease borrowing, and lower taxes. Besides, one of their significant roles is to create conditions to eliminate corruption and encourage ethical enterprises to prosper and provide productive jobs. Governments do not generate jobs that sustain economic growth.
Eleven Business Cycles Since 1945
According to the National Bureau of Economic Research (NBER), since 1945, 11 business cycles occurred with an average length of 66 months. They indicate that the current expansion cycle started in 2009. If that average applies, we should experience a recession in 2014-15. However, today’s economic conditions in the USA and Europe would suggest a slump could start anytime.
So, what should you do with your investments? First, you need to understand some basics. Unless you sold your investments, you lost nothing when the market fell in 2008; similarly, you haven’t gained with the subsequent rise. ‘Holding’ is a great strategy when fundamentals remain intact; panic is the worst response, to boot.
Second, you should not invest without a goal, plan, and budget. Neither should you borrow to invest, nor use the stock market to gamble, or speculate. Know why you are investing; know the worst reason to invest is to make money as that leads to gambling; know when to buy and when to sell.
Four Reasons to Sell your Investments
Here are four reasons to sell your investments:
- You reached your preset goals: Despite what’s happening in the market, resist the temptation to stay and hope for ‘more.’
- Your investment goals change: If your goal changed, get out; don’t try to time the market, exit!
- Conditions you expected no longer exist: As in two, leave; conditions might worsen.
- You made a mistake, and you need invested funds: Invest only after separating savings for emergencies and asset replacements. It is never too late to correct this error.
Don’t sell just because the market plummeted or hiked. You lose funds only when you sell below your cost; conversely, you gain when you sell above your cost.
Third, if you are within seven years of retirement, you should not invest in stocks, or bonds with maturities longer than seven years. Resist greed attacks, don’t follow the herd; instead, place funds where short-term market gyrations will not affect the principal. Sure, returns will be small; however, always remember the adage, ‘high risk, high return, low risk, low return.’
Dow Jones Industrial Average Doubled Since the Great Recession in 2008
The Dow Jones Industrial Average doubled since the Great Recession in 2008; individual share prices have increased spectacularly: Whole Foods’ share price, after collapsing to $8 soared to over $80 today. Apple’s rocketed from a low of $87 in October 2008 to $432 on 3 April, a 490% rise. These are mere examples of companies whose share prices have zoomed past pre-recession levels.
Yes, Stock Markets are soaring, how do you respond? I repeat, cautiously! What’s the take away from this? Ponder these seven points, pray and seek God’s direction for handling His funds:
- Be cautious and responsible as you invest.
- Don’t speculate or gamble.
- Don’t focus on ‘making money.’
- Develop investment goals and plans; ensure you are living with a budget for routine spending. Review these three (goals, plans, budget) regularly.
- Follow this cycle: pray, study investing and investment opportunities; develop goals and plans; buy, review, hold or sell; repeat the cycle.
- Regularly, before, during, and following market crashes, consider the four reasons to sell mentioned above.
- Ask the Lord to guide you as you manage His money.
Copyright © 2013, Michel A. Bell