Being Smart With $$ -- Reacting to Predictions of Stock Market Crashes is a Bad Strategy

In early October, TheStreet.com headline shouted: “4 Reasons We Could Have Another October Stock Market Crash.”  Many investors know October claims ownership of well-known stock crashes in 1987, 1929 and others.  If you are the type to believe and react to every headline, you might have missed a 2.36% October gain in the stock market (S&P 500 index).  That’s a spectacular return if you realize that 12 months like that would give you a 32% annual return.  The actual return over the last 12 months is 21% which is still spectacular but you would have missed that too if you listened to last year’s doomsayers and they are always out there.  Can there be a crash that’s not in October?  Of course.  But predicting when or if it will come is great for headlines and not so good for your portfolio.  If your stock investments are for your long-term goals then you don’t need to predict a crash; you just need not to worry about it when or if it happens and know the market is likely to recover nicely over the years.  We all know people who have been on the sidelines for years waiting for the crash.  Now they need a pretty big crash just to get in where they could have 3 years ago.  And if a correction turns out to be 5% returns for several years instead of the higher historical average then they will continue to lick their deepening wounds.  Buying and holding and investing new cash regularly is how most successful investors achieve long-term wealth. Timing the market is not.

- Larry Pike, CFA, Client Priority Financial Advisors LLC

- www.clientpriority.com