Are you tempted to bet against stocks? It’s a little like betting you can win in a casino. You might win in the short term but will likely lose in the end. A diversified portfolio of stocks provides a return from annual dividend payments or rising share prices because companies make money every year. Yes, it is true stocks don’t go up every year even though companies are generating profits. But how long do you want to bet against this annual creation of new value? Many smart investors have tried to time the market and predict a crash and many of those found themselves sent to the loser’s table. Similarly, casino operators know that when millions of dollars change hands at the tables, some gamblers will win but the house will ultimately collect a percentage of the total because the odds are in their favor. Some people will be lucky in casinos and some will be lucky making short-term bets against stocks. But most will experience what the odds predict: they will lose the bet. This year alone, many financial advisers have gambled with their clients’ money and reduced stock allocations only to watch the U.S. market rise over 18% since New Year’s. They bet wrong and might need the market to fall quite a bit now just to get back in at the same price where they sold. (Note that stock investments are appropriate for those with a long-term time horizon and the money allocated to stocks should be for your needs in the distant years ahead. Investments earmarked for near-term needs should be invested in less volatile assets.)
Larry Pike, CFA
Client Priority Financial Advisors LLC
Hourly financial advice. No commissions, No automatic, recurring adviser fees.