It seems like all we hear anymore is gloom and doom – especially about the financial world! Interest rates are creeping up, and some analysts predict a crash in the housing market and the economy. It is fair to worry about money because for some items, money is not going as far as it used to a year or so ago. People are expressing their concerns about investments such as 401Ks. Many are asking whether or not to invest in the market that keeps dipping. From the news, some contend that the best thing to do is to crawl under a rock! My advice is to stop listening to the insanity. Remember hype is what spurs on the “news.” Don’t buy into the fear. More importantly, if you start buying into the idea that the stock market will fail or even crash, you are betting against yourself. Let’s take a breath and think through all of the hype in a logical way.
First, let’s understand the stock market and its purpose. For the practicality of understanding, lets imagine a scenario. You want to get into the stock market, so you invest in an index fund or exchange traded-fund (ETF), Vanguard Total Stock Market Index Fund (VTSAX), or even better, Vanguard Total World Stock Index Fund ( VTWAX). Your Coworker asks you why you are getting into the stock market now and warns your that a crash is coming.
I guess he has a magic crystal ball telling him that…
Now let’s think about this logically. In order for these to fail, every company that is part of VTSAX or VTWAX would have to become defunct. What is the likelihood of this to happen? Correct! It is virtually impossible.
What is the Stock Market Really? Going deeper in understanding the stock market, I like to remind everyone what the “stock market” fundamentally is. The stock market is YOU. Let me explain this concept. If you invest in VTSAX that covers the United States, long term, you must assume that the United States economy will fluctuate, having highs and lows. But people are what fuels the companies and, in essence, are the market. The companies operate using leverage from all of us – not just investors. We are great consumers. We need gas, food, water, and housing. The more we need and want, the more we have to work in order to buy these things. In turn, companies will continue to produce goods, services, and materials. They will continue to create new, innovative, and revolutionary goods and services, generating more positive results for their companies and more profits. These profits are one factor in incentivizing investors who will continue investing. Occasionally, the governing entities will intervene and will impose sanctions and regulations. We know and expect that. It is the way the government works as well as our economy. Long term, this is nothing to worry about. Educated investors anticipate this. We also understand that the free market adjusts to change and will adapt, just as we will adapt. These changes and adaptations often lead to great improvements and an improved society.
Adaptations and Change: What Does It Mean? Overall, we humans do not like change, and we are prone to listening to biases. It is just the way we are programmed. We also, generally speaking, are somewhat limited in our scope and range of thinking on a worldview or a broad global view. Who can blame anyone for that? There is SO MUCH information out anymore that it is almost impossible to sort through everything – especially all of the NOISE and disinformation. My advice to you is to stop listening to all of the craziness out there. I know it is difficult, and we have the propensity to want to gather together. Certainly to some there is comfort in knowing others are in the same boat – even if it is sinking! But you need to stop listening and buying into all of the gloom and doom. Read and educate yourself. That is one of your best defenses against failing in the stock market. Remember that large corporations and entities study human biases and trends. They use this information and algorithms to their advantage – not yours. They are hedging on the hysteria of the masses. Educate yourself and understand that you are investing in the market for the long term. Look at the marker trends over a long period of time. The market is pretty tried and true. It will dip and fluctuate as it always does, but I am betting on us consumers. Remember we are the market. Stay calm and ride this out.
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