Who Gives a #*&$@%^?!
The stock market is just a big rigged casino, fueled by a reckless money printing Fed that is artificially inflating a global asset bubble, right? That seems to be the mentality of many investors as evidenced by the lack of meaningful domestic stock fund buying/inflows (see also Digesting Stock Gains). Underlying investor skepticism is a foundation of mistrust and detachment caused by the unprecedented 2008-09 financial crisis, when regulators fell asleep at the switch.
Making matters worse, the proliferation of the Internet, smart phones, and social media, has forced investors to digest a never-ending avalanche of breaking news headlines and fear mongering. Here is a partial list of the items currently frightening investors:
- Interest Rates: Will the Federal Reserve raise interest rates in June or September?
- Volatility: The Dow is up 200 points one day and then down 200 the next day. Keep me away.
- Greece: One day Greece is going to exit the eurozone and the next day it’s going to reach a deal with the IMF (International Monetary Fund) and European leaders.
- Terrorism / Middle East: ISIS is like a cancer taking over the Middle East, and it’s only a matter of time before they invade our home soil. And if ISIS doesn’t get us, then the Iranian boogeyman will attack us with their inevitable nuclear weapons.
- Inflation: The economy is slowing improving and as we approach full employment in the U.S., wage pressure is about to kick inflation into high gear. After falling significantly, oil prices are inching higher, which is also moving inflation in the wrong direction.
- Strong Dollar: Now that Europe is copying the U.S. by implementing quantitative easing, domestic exports are getting squeezed and revenue growth is slowing.
- Bubble? Stocks have had a monster run over the last six years, so we must be due for a crash…correct?
Seemingly, on a daily basis, some economist, strategist, analyst, or talking head pundit on TV articulately explains how the financial markets can fall off the face of the earth. Unfortunately, there is a problem with this type of analysis, if your evaluation is solely based upon listening to media outlets. Bottom line is you can always find a reason to sell your investments if you listen to the so-called experts. I made this precise point a few years ago when I highlighted the near tripling in stock prices despite the barrage of bad news (see also A Series of Unfortunate Events).
While I am certainly not asking anyone to blindly assume more risk, especially after such a large run-up in stock prices, I find it just as important to point out the following:
“Taking too much risk is as risky as not taking enough risk.”
In other words, driving 35 mph on the freeway may be more life threatening than driving 75 mph. In the world of investing, driving too slowly by putting all your savings in cash or low-yielding securities, as many Americans do, may feel safe. However this default strategy, which may feel comfortable for many, may actually make attaining your financial goals impossible.
At Sidoxia, we create customized Investment Policy Statements (IPS) for all our clients in an effort to optimize risk levels in a Goldilocks fashion…not too hot, and not too cold. Retirement is supposed to be relaxing and stress free. Do yourself a favor and create a disciplined and systematic investment plan. Being apathetic due to an infinite stream of worrisome sounding headlines may work in the short-run, but in the long-run it’s best to turn off the noise…unless of course you don’t give a &$#*@%^ and want to work as a greeter at Wal-Mart in your mid-80s.
Wade W. Slome, CFA, CFP®
Plan. Invest. Prosper.
DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients hold positions in certain exchange traded funds (ETFs) and WMT, but at the time of publishing, SCM had no direct position in any other security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on ICContact page.