we have been reversing from a massive fall and now only reaching all time highs after 15 years on the Nasdaq for instance. Pretty much most of the gains we have seen in the last 5+ years have been basically recovering lost ground.
But this is silly. I know of hardly anyone who was exclusively invested inthe Nasdaq, even in 1999 when the insanity reigned. And if people were, shame on them, they have demonstrated an inability to do anything but chase ghosts, not evaluate purchases of company stock. If you had put every nickel in at the S&P’s highest point (a broader, more meaningful measure), you would done so in October of 2007. You’d be in at $1,561. In the past two years the market has gone from $1,560 to over $1,800. In the past five years the S&P has climbed from $1,102 to $2,131 - nearly a 100% increase. The difference between the Nasdaq now and the Nasdaq then, it shouldn’t need to be pointed out, is that then it was a hyperbubble, with many companies based on nothing. Now, at least, there are functional companies, making products, earning profits, employing people in productive enterprise. Quite different.
Keep in mind also that your being 65 yo, you don’t likely have the luxury of being way off on your approach…a 70% clipping like Saul experienced in a single year could be quite stressful at 65.
There is no rule which says you have to sit on your hands while the market implodes. (It took over 2 years for the Nasdaq peak-to-trough between 1999 and 2002.) You could have been out with 10% or 20% or even 30% losses and been fine. The “collapse” of 2007? The S&P peaked in October of that year, and didn’t hit bottom until March of 2008. If you had 70% losses you were prey to the mantra of “doing nothing is better than doing something.” It’s been wrong before, it will be wrong again. It is pretty much wrong every time.
what we’ve been hearing from a lot of our clients the last couple of years is that they’ve actually held off from making many major capital investments because of uncertainly of the interest rate environment.
Warren Buffett’s BNSF is spending $5 billion a year to upgrade trackage and rail cars. Host Hotels is doubling its capital spending. Major investments are in the works by everyone from Macy’s to Campbell’s Soup. Dollar Tree is ramping up capital spending almost 50% this year. Did any of your clients know what interest rates were going to be 5 years out in 1998? In 2006? In 1992? In 1975? What five year projection has held up…ever? I think you’re hearing the first objection, and not the real objection.
A slow and reasonable increase in rates to a long-term, sustainable level may actually have the ironic effect of spurring business investment, which will lead to long-term, sustainable corporate profits. And that, generally, corresponds to strong stock market returns over time.
I haven’t looked at this closely, but based on a couple of side by side charts going back to 1971, I am unable to find much coorelation of where the market went up while interest rates were going up. The market went up slightly in 1992-3 when interest rates were rising, but barely. And it did so in the mid eighties, once Volker took his foot off the brake and then reapplied, but again barely. Meanwhile the chart of interest rates (actual) looks like the path of a drunken sailor trying to find his way back to his ship at midnight without a signpost or lamp. What possible “5 year projections” could anyone have made at any time? http://www.tradingeconomics.com/united-states/interest-rate (I notice there are only two five year periods of any significant rate stability in the past 50 years: the mid nineties … and today.)
Someday … interest rates will start to rise again. By how much? We don’t know. For how long? We don’t know. What will the effects be? We don’t know. What we DO know is that the market goes up over time, that good companies with real earnings and a significant business model will tend to prosper, and that by trying to get rich quick you are more likely to get poor quick. Relax. Let the market do the work.
