last week from my report I covered Mistake #11: Investing in high
Today I'll cover Mistake #12: Not learning from the history of the market.
One of my personal passions is studying the history of the stock market and the economy in general. My fascination began in 2000 watching the NASDAQ crater. I became intrigued with the market fallout, especially how Wall Street could have been so wrong.
If you remember, Wall Street was pumping up the biggest stock market bubble of all time – reinforcing our beliefs that the stock market "always goes up" and that we were in a "new economy." They said, "it is different this time."
What I want you to learn is the following:
The stock market has a history of going from Cheap to Expensive and back again over long periods of time.
The larger the bull market, the longer the bear market that follows it.
Inflation historically rises from low points to higher points during bear market periods.
The stock market historically does well during periods of falling interest rates and falling inflation.
What does this mean for the future?
Investors need to prepare themselves for the fact the US stock market (as a whole) might stay flat or "muddle through" for several years to come. Inflation during this period historically rises.
You want to invest some of your portfolio in assets that do well during times of rising interest rates, higher levels of inflation, and a flat stock market.
To sum up, the volatile market we have experienced is perfectly normal and might continue for some time to come. This is one reason I love the Harvard Endowment approach for the upcoming 5-10 years. This approach should help diversify your portfolio, thus hopefully giving you a higher return with less risk.
Most 401k plans are not set up to do well during volatile periods because most 401k plans lack the investments that do well during these periods!
WARNING: Most financial people who would give you advice either do not study market history or were not in the investment business during the 1970s.
Just remember too that as the market changes, your portfolio grows and time passes, often your investment goals and your tolerance for risk changes. When this happens you need to adjust your asset allocations accordingly.
That is why I offer a FREE Investment Analysis & Portfolio Review. It is a no-obligation assessment of your portfolio to see if you're still invested correctly for your goals, your risk tolerance and your portfolio size.
To get started on your analysis & review either reply to this email or call me here at the office at [aphone].
I hope you are enjoying the report! If you did not get a chance to read it yet here again is the link to download the PDF where you can open it: http://www.worst13mistakes.com/13mistakes-thanks.html
W. Edward Newton Jr., CFP
Newton Financial Network
13850 Ballantyne Corporate Place, Suite 500
Charlotte, NC 28277
Phone: (704) 552-8689