(The opinions expressed here are those of the author, a
columnist for Reuters.)
By John Wasik
CHICAGO Aug 11 With global angst going up
several degrees, there are myriad reasons to feel nervous about
stocks. But that shouldn't compel you into timing the market -
focus on your prosperity and happiness instead.
As University of Michigan researchers Justin Wolfers and
Betsey Stevenson have discovered in a study on economics and
happiness, there's a strong link between higher incomes and
self-reported levels of life satisfaction and happiness. (Link
to study: bit.ly/1cg1Mj6)
While money is certainly not the only ingredient for a happy
and prosperous life, it can certainly smooth out a lot of the
Here are four reminders for why you should not let market
anxiety eat you up:
1. Stocks follow cycles, but most analysts are notoriously
awful at predicting when they begin and end.
Look at the year 1982, when the S&P 500 ended a 63 percent
down cycle that began in 1968 at the height of the Vietnam War
and widespread social unrest. In the early 1980s, Ronald Reagan
was president, the Federal Reserve was fiercely battling
inflation and few had stocks in their retirement plans.
In the bull market that began that year, stocks rose some
666 percent until the height of the dot-com bubble in 2000. Who
was optimistic in 1982 to the point of predicting an 18-year
Compare that to what's happening now: Although we're still
in a "cheap money" economy thanks to the U.S. Federal Reserve's
stimulus program and low interest rates, this period won't last
forever. So you should focus on maintaining your nest egg and
reducing stock and bond market risk now.
2. There is no definitive "trigger" for cycles to shift.
Market historians often want to pinpoint what single factor
tells investors to buy or sell. The reasons are often obscure
and based on "animal spirits," or irrational, unpredictable,
High interest rates and energy prices, loss of optimism,
bank failures and inflation are usually bearish, but not always.
From 1921 to 1929, stocks rose nearly 400 percent, followed by
the Great Depression, although there was a Wall Street rebound
of 266 percent from 1932 to 1937.
Scholars are still debating what happened during that
period. Few were able to time the market successfully during
that difficult time.
3. Sometimes short-term cycles are costly distractions.
The second years in presidential terms are typically
sluggish, with stocks in the third quarter averaging a 0.3
percent return, according to Standard and Poor's.
But let's say you thought the market was getting bearish and
pulled money out of stocks this summer through the end of the
year. Then you'd miss fourth-quarter rebounds that average from
2 percent to 3 percent during that period. Again, you may not do
yourself any favors with a gut-based market timing strategy.
4. The long-term view is bullish.
Going back to 1926, every huge stock decline has been
eventually followed by an even-bigger recovery, according to
Leuthold Weeden Research. That includes all wars, market crashes
and everything in between. Can you ever tell when it's "safe" to
be in the market? Those that pretend to know are guessing.
The moral of this story? If you're investing long term, want
to beat inflation and build wealth over time, stocks make sense.
But focus on a mix between stocks, bonds, real estate and
other assets that allows you to sleep at night. Your objective
is not to figure out when stocks are heading into a bear market,
but building enough of a nest egg and income stream to ensure
(Follow us @ReutersMoney or here;
Editing by Beth Pinsker and Jeffrey Benkoe)