Are you worried about a major news event shaking the markets in 2016? I can guarantee that there will be several earth-shattering 'crises' in the news this year that will scare the pants off of you and make you want to ditch your investment process and run for the hills. But does a negative news event always make the stock market fall? Knowing the answer to this, and taking it to heart, can help you condition yourself to become a better investor and reframe your reactions to these events so that you can stick with your long-term investment process.
My colleague Mawe and I recently attended a presentation by economist Brian Wesbury of First Trust Portfolios. In his presentation, Wesbury covered many topics related to the state of our economy and the markets. Two of his slides stood out to us more than the others.
Over the seven and a half year period from January of 2009 to July of 2015, there were many troubling world events in the news. Any one of these events seemed, at the time of their occurrence, to be a major deal. If all one did was focus on these events as they occurred, it would be difficult to be optimistic about investing in the US stock market.
Take a look at this slide. You'll remember most of them:
And yet, despite all of these hurdles for the markets and the economy to overcome, look at what happened to the S&P500 stock index over the same time period:
In my almost three decades of professional investing, there has always been something going on in the world to scare most people and keep them on the investing sidelines. And yet, the world keeps spinning. The names of the events and the faces of the actors change over time, but human nature does not.
The old saying goes, "A rising market always climbs a wall of worry." In this case, the truism is especially evident. No one knows, for sure, what the market will do this year. This is not a prediction of the future. Instead, it is a lesson that, despite the news of the day, the world goes on. Sometimes our worldview gets distorted by the information being fed to us and we forget the big picture.
We can always find a reason-du-jour to not invest. But for the long-term investor, 'bad' news is rarely a reason to not implement and maintain a plan. And, if the market falls in 2016, it will be an even better time to invest for your future.