Market-related anxieties, fears, and hopes are always going to be out there — along with headline news stories. The headlines might make your head spin. Stop worrying! These concerns are already factored into the price of the stocks and businesses.
Investments have had a positive expected rate of return over time and are expected to in the future because of the risk and return story. This states that since stocks are riskier (higher price fluctuations vs. cash/bonds), the investors in stocks require a higher compensation to hold these stocks.
Here are a few recent examples of this in action:
- REITs (Real Estate Investment Trusts) were one of the top performing asset classes since the year 2000. Each REITs dollar from 2000 is now worth $6.27 in 2018.
- From 2000 to 2018:
- US small cap value stocks are up 5.59x
- International small value stocks are up almost 4.81x
- Emerging markets value stocks are up 4.19x
- Cash is up 1.35x
The timing is completely unpredictable — that’s why one always needs to be always invested to capture the returns when they do occur.
Things will consistently happen that induce worry and stress. Here are two recent examples:
- Inverted Yield Curve — while this makes for a good and scary headline as it pertains to equity investing, it is already priced in the market(s). Remember, the market is a continuing information processing mechanism that incorporates all known information.
- Trade Wars — once the news of trade wars is in the public domain, the impact of the trade wars on returns is already in the price — what moves market is future unknown news.
Don’t give in to scare tactics. Stick to the plan that is governed by financial science and let the power of the markets work for you.
Jeff Holland | VIAIV