Reality Check! Here are 24 Stock Market Facts to know to help you have realistic expectations so you can plan your financial life appropriately:
- Market rallies do not go on forever.
- Well-diversified portfolios contain a variety of asset classes (large/small/foreign/domestic, etc); those without proper diversification will get slammed at some point.
- Markets can change at any moment without notice. After the change, you won’t know the top or the bottom until well after it has occurred, so don’t try and guess either.
- Flat years are normal.
- Down years are normal.
- Recessions are normal.
- Buying a specific stock means someone has decided to sell that same specific stock. Have you ever considered the “why?” Ask yourself: What is that person losing that you’re gaining? What is that person gaining that you’re losing?
- Good planning takes into account good years, fair years, flat years and bad years.
- There is no such thing as a 100% risk-free return. Even a treasury bill, which has been deemed as risk-free, is only risk-free when it comes to principal. If its return doesn’t outpace inflation, it is NOT risk-free.
- Buy low/sell high is far more difficult than it sound when humans get involved and “feelings” are employed.
- There are a huge number of uncontrollable variables that impact market performance (weather, labor, energy, inflation, political climate, perception, litigation, legislation, management changes, etc).
- You cannot “will” a stock to new highs.
- Money needed for a short-term goal should never be invested in the stock market. The risk is simply too great.
- Your risk tolerance tends to move with the markets. If your investments are up, so is your belief of your ability to take the risks. If the markets are in the toilet, you have next to zero risk tolerance. It’s human nature. Proceed accordingly.
- Long-term bonds are risky.
- Just because it’s called fixed income, doesn’t mean you have no risk.
- Deferred annuities are rarely appropriate, except in very specific situations, regardless of what the sales people tell you. The guarantees and features and benefits typically come at a very, very steep price.
- Time seemingly flies during a market rally, and time slows down considerably when markets are trending downward.
- Stock tips are either illegal or just plain nonsense.
- Stock pickers are like sport fishermen, they can’t wait to tell you about the huge fish they caught, but fail to tell you when they catch nothing.
- People don’t talk about money; they show you their trappings, but not their values.
- Money is not a destination; it’s a tool.
- As soon as the markets turn south, someone will be touting gold bullion/coins as the next best investment.
- Buying rental real estate doesn’t provide a fool-proof guaranteed stream of income; regardless of what you’ve heard. Remember, someone just sold that property. Moreover, real estate professionals passed the opportunity to buy it. So what makes you so smart or so lucky? Again, proceed with caution.
Have questions? Contact us to talk with our experienced advisors about the stock market, accumulating wealth or navigating financial decisions. Take the time to assess your knowledge and don’t hesitate to ask for help from professionals.