While I agree with most of what you said. I believe an important factor that was omitted is the fact that you should also focus on the individual companies you are invested in. It is true that the overall market conditions affect individual companies one way or the other, but, analyzing the economic conditions of the particular company e.g. profit level, amount of debt, sales growth etc. should be the determining factor on wether or not you stay with it. If anything, when the price of a good company is driven down due to market scares, that is a great opportunity to buy more stocks at a discount price.
One issue I see that will cause some problems is the value of the US dollar. Yes the future is uncertain, but US markets usually go down in response to the dollar getting weaker. A mix of more national debt and the US printing more money to pay that debt is going to cause the dollar to weaken over the next year. If we can find a way to get the market past a weakened dollar or get the value of the dollar to increase, then I would say we have a chance of having a stronger economy in ten years.
Do small businesses have a way to help boost the value of the dollar?
The markets had another tough day of volatile trading, falling 4.5% on fears of recession, concerns over European banks, a weak job market and a jump in inflation.
As we reflect on this latest market news, it is worth reminding ourselves that markets are forward-looking.
When the future is uncertain they will tend to react strongly to each new headline.
Recognizing that, we should expect that as long as the outlook for economic growth remains unclear, we will continue to see days of pronounced market swings—
up and down—in response to the news.
In what is admittedly an unsettling environment for individuals,
- Expect this level of volatility to continue. That's simply the state of the markets right now.
- Listening to the media commentators weighing in on whether to stay invested or not is rarely the best advice for the individual. That answer depends on your current situation and whether your goals, liquidity needs or risk appetite has changed.
- Although no one can predict the future, market recoveries have historically occurred at the moment when no one saw them coming. The factors that drove sustained upward price moves very often only became apparent after the fact. Investors who exit the markets based on short-term market fundamentals frequently miss the signals to re-enter. Consequently, they do not participate in the recovery in prices. Knowing this, sometimes the best action to take is no action.
- The fundamental questions we need to ask ourselves are these. Do we believe that economic growth follows recession as the historical pattern suggests? Do we believe that our economy will be larger and stronger 10 years from now? Do we believe the world will continue to grow wealthier? If your answers are "yes," then investors willing to accept the risks of market volatility, including the loss of principal, should consider remaining in equities as a strategy for potentially profiting from economic growth.