This has to be one of the most common questions I get asked on a daily basis. It doesn’t matter who I’m talking to, inevitably the question comes up. However, if you know me as a financial planner, I am by no means a market prognosticator nor do I profess to be some kind of stock market guru.
Nonetheless, managing my client’s investments is part of my job, so I expect to have these types of questions. Now, whether I answer it in a black and white way is yet to be determined. On the one hand, the stock market has always gone up looking at it long-term, however, over the short-term, the market experiences all kinds of ups and downs.
So, yes, it can certainly keep going up, and no it certainly can’t keep going up. That’s a pretty clear answer, right? I know, that’s probably just me skirting the question, so I’m not 100% right or wrong, but somewhere in the middle.
In our post today, I want to dig into this question and see if we can give you some reassurance or at least some insights as to whether the stock market can just keep going up.
The run of the stock market
If you've been invested in the stock market over the past 8 months, I’m guessing you’re probably pretty happy with how things are going. Regardless of whether it’s domestic or foreign, small or big, value or growth, they’ve all been solidly in the positive.
However, this bull market run is a lot longer than just 8 months. It’s been going on for over 8 years since the stock market bottomed in March of 2009, which (if you remember) wasn’t exactly the most fun time to have your money invested.
Looking back at the history of the stock market, an 8 year bull run is up there for one of the longest we’ve had in our history. Does this give way to causing nervousness or skepticism? Absolutely, and that’s exactly what I’m seeing today—this is our heart talking to us and not our brain.
As I’ll go into more detail later, the stock market doesn’t remember what it did yesterday or if it’s been on a great 8 year run. Every day is independent of the next, regardless of how we look at it through our foggy lenses.
It’s been a great run that we should all be grateful for after experiencing 2008-2009. So, let’s take a look at our current situation and see if we can determine where it might go and if the stock market can keep going up.
The stock market now
So, our current situation is that the stock market is going up but with a side of skepticism and nervousness. I get it because I also feel the same emotions. There is just a lot going on politically, both here and abroad.
Let’s face it, we don’t exactly have a government that’s running on all cylinders, and the approval ratings are pretty dismal regardless of party affiliation. Plus, we have the debt ceiling vote looming around, which always provides a good jolt of nervousness.
As for globally, the biggest threat looming is North Korea and what it is they have in store. It’s anybody’s best guess what their leader might do. Obviously, this leads to a lot of nervousness, which we have seen in the stock market in the last week.
However, there’s a lot of good things going on as well. Unemployment is at all-time lows, there are more jobs than people to fill them, corporate earnings have been good, and there’s even whiff’s of tax reform.
Looking back over time right now is really no different than any other time in our history—even though we always like to think “this time is different.” As it’s always been proven, it never really is regardless of what the media and talking radio heads are telling you.
There are always going to be some scary things happening in the world, that’s just the way it is. There are always going to be things we don’t like or are uncomfortable with. That’s just life, though. If we went through life worrying about everything that could go wrong, we’d never get out of bed.
So, we do have some things out there today not looking that cool, but that’s normal. It’s when we think everything is going perfect and will always be, that’s when we should start getting worried. Things can always be better, but we’re certainly not in a period where we haven’t experienced these types of issues before.
What to expect going forward
Just because the stock market went up one day doesn’t have anything to do with whether it will go up the next day. A good example of this is the roulette wheel. If it’s turned up black for the last 30 times, that still has no influence on whether it will turn up red or black the next time—no matter what your heart is telling you. Like spins on the roulette wheel, the day-to-day ups and downs of the market are independent of each other.
So, even though we’ve been on a great run for the last eight years and it’s one of the longest in U.S. history, that still does not have any influence on whether the market will be up or down the next day, month, or year. Remember, every day is independent of the next.
Because I am a fundamental investor, I look at company earnings and other factors to determine where the stock market could go. And, as of right now, company earnings (for the most part) are still growing and the stock market as a whole is pretty fairly priced.
Plus, as I mentioned earlier, people are just plain skeptical and nervous if the stock market can keep this up—and, like I mentioned earlier, that’s actually a good thing. It’s when everybody is over the top positive and giving out recommendations that you should start to get worried. Until that time comes, I’ll continue to have a positive outlook for where the market is heading.
So, can the stock market just keep going up? Of course it can because it always has. Granted, we have some down turns every few years, but looking at the big picture, it has always gone up so why would I doubt it now?
What it really comes down to is what you’re investing for and for how long. If you have 30 years to go until retirement, why would you care if your 401k goes up and down? You don’t need that money for 30 years, so be happy when it goes up and be happy when it goes down because you’re buying at a discount.
Now, if you need that money in the next 3-5 years, you shouldn’t even be investing in the stock market –unless this is retirement money in which it should always be invested to a point since it will need to last you the rest of your life. But, if you’re saving to buy a new car, new house, sending kids to college or whatever the goal might be that’s within 3-5 years, this money should be kept safe since you’ll be needing it soon.
Regardless of whether the stock market goes up or down over the next 12 months, your goals are the only thing that should dictate how you invest your money. If they haven’t changed, then there’s no reason to make any changes to your investments whether the market is going up or down.
This is a post from Clint Haynes, a Certified Financial Planner® in Lee’s Summit, MO. He is also founder and owner of NextGen Wealth. You can learn more about Clint at the website NextGen Wealth.