With the election and the impending fiscal cliff, it seems like all I’m reading about is how the world is ending and you should pull all your money out of the stock market and stash it in your mattress. I’ve seen many articles and interviews bemoaning high-frequency algorithmic trading, claiming that it is causing the demise of the stock market and us ordinary investors should get out before we lose everything. I see people claiming that because Obama got re-elected, our country is completely doomed. Apparently, this guy committed suicide because of Obama’s re-election!
Am I the only one who believes that things will get better?
I’m no history buff, but we’ve been through hard times before, and we survived them. The markets are cyclical. There will be bad times and good times. But in the long run, the market has always gone up and to the right (my company’s COO always jokes that all he cares about are if our charts go up and to the right). I have confidence that our country will right itself in time. The only unknowns in my opinion are how we’ll improve our situation and how long it will take.
For those of us in our 20′s or 30′s, we still have many decades for our investments to grow. Even if the next ten years offer terrible returns, we’ll be ok in the end. We might not have as much as we hoped we would, but as long as we keep working hard, earning money, and investing in multiple streams of income, I don’t believe we’re going to wind up in some gloomy, post-apocalyptic world where we have to barter for a loaf of bread.
While I feel terrible for the people closer to retirement who are afraid their investments will disappear just when they need them most, for those of us with many decades to go, downturns are an opportunity. When other people are pulling out of the stock market, that’s when we should be getting in. It can be scary to invest when you see the numbers dropping day by day, but remember to focus on the future. As long as you don’t need the money in the next few years, chances are incredibly good that money invested today will grow by the time you need it. If you’re saving for your retirement that’s 30 or 40 years away, you can get in at a discount now and still have plenty of time for your investments to grow.
If you’re an index fund investor, keep investing. If you invest in individual stocks, do your research to identify companies that are likely to survive (or even thrive) through an economic downturn. There are plenty of solid companies that survived this far through the recession. Companies that have continued to increase their dividends over the past four years are a good place to start.
And what about the high-frequency algorithmic trading that’s got a lot of people angry? I should stress that I’m not even remotely qualified to talk about the implications of this, but in my opinion it seems that if you’re investing for the long term, you shouldn’t worry too much about it. You may question its morality, but I don’t believe it’s going to cause the demise of the stock market, it’s just going to change it.
If you’re a day trader, it’s true that you can’t compete against a highly effective algorithm, but if you’re just an individual day trading for himself, I fail to see how it would affect you that much. Again, it just changes things. It’s a new variable that as a day trader you will need to understand, but if you’re good at what you do, you can still be successful. (If there are any day traders out there, feel free to enlighten me!)
So yes, things are pretty crappy in our country right now. We have a lot of problems that need to get sorted out. But I don’t believe the world is ending, I don’t believe our country is doomed, and I don’t believe we should lose all faith in the markets. Call me an optimist, I guess.
In fact, I think if you’re already living a frugal lifestyle, meeting or exceeding your earning potential, diversifying your streams of income, and doing your due diligence researching your investments, you don’t even need to do anything differently in this economic climate. If you’re not doing those things, then a crappy economy could be the impetus to make you start doing them. My main piece of advice would be to ignore the comments section on any news site. There are too many people wailing that it’s the end of the world. Don’t believe them. Keep on working to improve your own situation, and you will weather the storm.
There is nothing to be gained from whining about how terrible the economy is. Your situation may be bleak at the moment if you lost your job or are a recent grad who can’t find one, if your wages or hours were cut back, if you’ve lost money in the stock market, if you don’t have the money to pay your student loans, etc. But whining about how awful everything is will not solve anything. All you can do is keep trying to better your situation and stay positive. I have confidence that we will make it through this.