So the media is busy issuing contradictory advice this week. According to one thread online, the markets are in a repeat of 2008. (i.e., the sky is falling). According to another school of thought, we are on the verge of a big rally because investors are sitting on piles of cash – a situation that historically is the precursor to a rebound.
My takeaway from all this, similar to Jeffrey Kosnett’s: Don’t let panic derail your long-term strategy. If you are set to rebalance at the end of the quarter (as some people may be), go ahead and do so, even if it hurts to sell bonds and buy stocks.
On a side note, one of the visual aids being used by the-sky-is-falling side of the debate made me laugh. When I was in journalism school, I took a class from Gene Roberts, an editor who led The Philadelphia Inquirer during its glory days. He devoted one entire session to the myriad ways you can play with the scale or other assumptions of a chart to make one point or another.
Here’s the chart of the performance of the MSCI AC World Index over the first part of the year, from Business Insider:
Here’s the chart on a different scale and ending in the present, which makes it look a lot less scary.
Tempting to try to time the market
If you buy the second scenario outlined above – that the market will rally – you may be tempted to try to time the rebound. Think again. Here is Wealthfront CIO Burton Malkiel on Investors’ Most Serious Mistake, market timing.
Sentiment against Wall Street
Small protests against Wall Street continued this week. Ginia Bellafante of the New York Times wrote a pretty nasty, condescending piece about the protestors. The Nation’s Allison Kilkenny defended the seriousness of the protests.
Whatever you think of the media warfare, there is a backlash against the financial services industry, which hasn’t gone away. The backlash is taking many forms, some more mainstream than others. Here’s a serious proposal for a tax on all financial services transactions. It faces opposition in Europe and in the United States.
Here’s our own recent post delving into the conflicts of interest that pervade Wall Street: We Call Bullshit: Disclosures Don’t Work.
For perspective on the current state of the stock market, I like this piece on the Vanguard blog:
Maybe a lost decade for stocks, but not for investors.
The author is looking at a retirement portfolio, and focusing on the value of an employer match. But even without an employer match, a 60/40 portfolio of stocks and bonds, based on total returns for the S&P 500® Index and the Barclays Capital U.S. Aggregate Bond Index, returned 3.85% during the time period. The key to the positive returns in the numbers he cites: not falling prey to the number one mistake made by investors, which is trading too much.
See The 9 Stupid Things Investors Do, According To The Library of Congress.
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About the author(s)
Journalist Elizabeth MacBride is Wealthfront's editor. Her work has appeared in Crain's New York, Advertising Age, the Washington Post and the Christian Science Monitor, among other publications. View all posts by Elizabeth MacBride