Over the past few months many investors have been questioning their methods of building wealth for the future. With the markets being more volatile than at any time in history, there is no doubt that many people simply feel like running for the exits.
With that in mind, here are three questions that many investors are asking along with answers based on historical statistical evidence.
Why am I still investing in the U.S.?
The message that history has taught us is a simple one. Analysis shows that in the past, when the S&P 500 was trading below fair value and inflation was less than 4.2% which is certainly the case today, there is an 83.3% chance of achieving a positive return.
All the signs and tools that we have to work with indicate that coming out of this crisis there will be significant upside in the U.S. equity market.
How can I keep investing when the economy is in the tank?
This one is easy, stock markets are leading indicators and as such stock markets will likely recover before the ensuing economic recovery. While it is impossible to identify when these recoveries will begin, missing out on the sharp returns that often occur in the early stages of a stock market recovery, is a mistake that investors make very frequently.
How am I ever going to bounce back?
We must remind ourselves that, as a long term investor, it is important to continue to follow the forward looking strategy that was implemented before they felt the emotional pressure of daily market volatility. A very compelling fact to reference is the asymmetrical nature of bull markets vs. bear markets.
The average bull market gain of 79% far outweighs the average bear market decline of 28%. And the length of the average bull market is 34 months long vs. the length of the average bear market of only 11 months.
While these questions are not intended to completely sooth anyone’s concerns about the health of thier portfolio, it is always nice to know what history has shown. Even though history cannot predict the future, it is the best information that we have to qualify our decisions with.