The Danger of Listening to the Crowd

Thanks to Brad for finding this article in the Palm Beach Post, “Why are Americans avoiding stocks? Ask a Shrink”. Since the market drop in 1987, people have been focused on the market bottom instead of the top. In general, news focuses on the negative and the financial news of the past decade has lived down to expectations. But the reality of both short and long term market performance shows a different picture.

Since the fall of 2007 and 2008, the major market indices are up and dramatically. The two year returns for domestic large, mid, and small cap stocks, as tracked by the S&P 500, 400, and 600 returned between 20% and 31%. Emerging markets are up almost 10% and international stocks are modestly positive. The five year returns show emerging markets, mid and small cap domestic stocks up from 15-20% with large domestic stocks slightly negative and international stocks declining almost 30%. Twenty year returns for all indices are well into the double digits and that’s in a positive direction! But, focus on the news and your feelings are not likely to match the numbers.

I’ve worked with wealthy clients since the late eighties. They didn’t get there by shifting their investments constantly and they didn’t get there by focusing on their money. They got there by spending less than they earned, avoiding debt, and investing for the long term. If you want to become wealthy, here’s a simple suggestion.

Focus on your life, not your money. Invest regularly and don’t change strategy due to short term market news or gloomy forecasts.

image credit: Paul Puckett


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