There are always risks in the equity markets. To many readers,\nit may feel like risks are currently high and on the rise. But of all the risks\nthat are increasingly grabbing people\u2019s attention today \u2013 the trade war,\nimpeachment, recession, etc. \u2013 none of them are actually the biggest risk to long-term\ninvestor returns, in my view. <\/p>\n\n\n\n
I believe there\u2019s an even bigger risk out there today, and\nit has nothing to do with economics, earnings, interest rates, trade wars, or\nmarket fundamentals. The factor that I think could hurt long-term\nreturns the most \u2013 and thereby pose the greatest risk \u2013 is an investor\u2019s\nattempt to time the market\u2019s peak.<\/em><\/strong>\n <\/em><\/p>\n\n\n\n As recession talk continues in the current environment and\nthe \u2018wall of worry\u2019 builds, more and more investors are likely to try and guess\nthe top of the bull market. What concerns me today is that even the slightest\nwhiff of downside volatility could trigger knee-jerk reactions for people to jump\nship and sell stocks, which is almost always a bad decision. This risk of\nmaking a knee-jerk reaction is even higher in the modern era, where information\nmoves very rapidly and negative headlines are easy to find. <\/p>\n\n\n\n For example, investors used to think about volatility in terms\nof years or even decades, but these days volatility is more commonly measured monthly\nor even daily! The problem with this mindset is that looking at volatility over\nshort time frames often paints a picture of a choppy and scary stock market.\nWhen conditions appear uncertain, investors are more prone to make timing\ndecisions instead of sticking to a long-term strategy. <\/p>\n\n\n\n ________________________________________________________________________<\/p>\n\n\n\n As Recession Talk Persists,\u00a0Base Your Investing Decisions on Hard Data<\/a><\/strong> If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today! ________________________________________________________________________<\/p>\n\n\n\n As usual, history provides some clarity. If we look at\nS&P 500 returns in rolling 1, 3, 5, and 10-year periods from 1871 through\nSeptember 2019, we indeed find that volatility and the possibility of negative\nreturns are more prevalent over short time frames. In one-year periods,\nvolatility2<\/sup> registered at 19% and the possibility of a negative\nreturn was 28%. But as you zoom out and look at longer time frames, volatility\ndecreases as does the probability of a negative return. Take a look at these\nstats:3<\/sup><\/p>\n\n\n\n That last data point deserves another look. If you held onto\nequities in any 10-year period from 1871 to September 2019, you had a 97%\nchance of achieving a positive return. It\u2019s crucial to note, however, that these\nodds do not exist for the investor who tries to \u2018time\u2019 market peaks and troughs.\nThe odds do<\/em> apply to the patient,\nlong-term focused investor who sticks to the plan and dodges gut reactions, in\nmy view. <\/p>\n\n\n\n Bottom Line for Investors<\/strong><\/p>\n\n\n\n I believe the key to managing this \u2018biggest risk\u2019 is: remember that stock prices eventually align\nwith fundamentals. <\/strong>Over the short term, stock prices will fluctuate far\nmore often than a company\u2019s fundamentals will. There will be times when a\nstock\u2019s price trades far above its actual value, and times when a stock\u2019s price\ntrades far below where it should. But over the long term, the stock market is a\n\u2018weighing machine,\u2019 reflecting the value being created across the global\neconomy. If you believe the global economy will be bigger, more diverse, and\nwealthier overall than it is today \u2013 which we do \u2013 then short-term fluctuations\nshould never affect your decision-making. <\/p>\n\n\n\n As recession talk increases in the months and quarters ahead,\nand as economic conditions seemingly become more uncertain, the temptation to\ntry and time the bull market\u2019s peak is likely to rise as well. Any downside\nvolatility will be hard to ignore, and investors may misconstrue normal selling\npressure for a full-blown bear market. Try to avoid getting caught in this\ntrap. <\/p>\n\n\n\n
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Trying to time the market, in my view, is not the best option. Instead, I recommend planning for the long-term. When preparing your investments for more volatility and a potential recession, it is important to keep an eye on key economic indicators. To help you do this, we are offering all readers a look into our just-released\u00a0December 2019 Stock Market Outlook report.<\/strong>
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This 22-page report contains some of our key forecasts to consider such as:<\/p>\n\n\n\n
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IT’S FREE. Download the Just-Released December 2019 Stock Market Outlook<\/a>1<\/a>\u00a0<\/sup><\/strong>\u00a0<\/p>\n\n\n\n