Is the stock market going to crash?

stock marketThe sky is falling, the sky is falling!!!

I’ve had emails and phone calls this week with many questions and concerns about the market.

And, I’m here to tell you that the sky is not falling…Not yet anyway!

If you watch any form of media, they are describing the market’s reaction to the debt debate as a crash. And if you listen to them, they will give you an ulcer if you don’t really know the other side of the story.

As Paul Harvey, used to say, “And here’s page 2″….

Well page 2 of this story will shock most of you.

Here are the most popular questions I received and my responses.

With all this debt talk, hasn’t the stock market been dropping a lot?

The stock market was actually up last week about .5%. It is also up around 2.8% for the month of September and is slightly down so far this month.

As you can see on this chart of the S&P 500, even with the market momentum slowing lately, the market is still trending higher over the last year.

Granted, this is not a super hot market the last couple of months, but the market is definitely not tanking. That doesn’t mean things can’t change quickly, but we have to use verifiable evidence to make decisions and as you can see on the chart it doesn’t show us melting down.

 

How has the market done this year, I heard the S&P is way up?

The S&P 500, which is a good representation of the US stock market, has risen 18.7% since January. But US Stocks will normally be only one part of a diversified portfolio.

Most investors hold other types of investments, such as bonds, international stocks, etc and by diversifying you reduce your risk but you will also reduce your return when compared to only one type of investment, like US stocks. But, that is ok, because you are lowering risk and potentially smoothing out returns.

For example, a company called iShares has an ETF (exchange traded fund) that represents a  moderate balanced fund (AOM) and their fund is up a little over 6% this year. I would say this is good, since this type of investment has less than half the risk of the stock market, so you wouldn’t expect it to earn the same type of return.

Should I be buying Gold with all this talk about US Debt, etc?

This has become a popular question over the last couple of years. My feeling on gold is this, if you want to hold a portion of your portfolio in gold, that is fine. But, don’t do it as a hedge against inflation.

Gold prices will be very volatile and will go up and down quite quickly and most investors have trouble holding during the violent swings down, like we are experiencing now.

Gold, peaked around $1923/oz. last August and has since then dropped all the way down to $1179/oz. in June, which is a 39% loss, while the stock market had risen 52% over the same time period.

There was an in-depth article done by a professor at Duke University that concludes that there is very little evidence that gold hedges against inflation and I happen to agree.

Let me know you thoughts and feelings about the above questions and answers.

As always, I welcome your questions and comments.

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