It’s not exactly headline news, or news to anyone for that matter, that this has been a disastrous year in the stock market.
In fact, I have a chart that I share with clients showing how volatile the market can be during any one year, based on 200 years of history. Barring an 11th hour rally during December, 2008 could go down as the worst year in the history of the stock market, so this chart might be in need of updating.
As I write this column, the stock market is down roughly 35 percent for the year. Of course, the market has been so volatile that this number may be materially wrong before I finish writing this sentence, and positively obsolete before you finish reading it.
How does this market compare to history?
It’s pretty common knowledge that the market can be volatile in the short-run, and to illustrate this I’ll show clients a chart that includes the worst annual performance of the stock market during a 200-year history.
So far this year, household names like Lehman Brothers, Merrill Lynch, AIG, Bear Stearns, Washington Mutual, Fannie Mae and Freddie Mac have needed bailouts by either us, the taxpayer, or larger institutions.
And as of this writing, the U.S. stock market is down 18 percent this year. How did it happen and what does this mean for us? Forget all the psychobabble you hear on TV — here it is, plain and simple.
Looking at the business headlines is enough to scare anyone into squirreling away any money they have under the nearest mattress. I’m talking about scary headlines like the following:
• America Bears the Recession
• Real Estate Bubbles Over
• Airline Industry Crashes
• CEOs Trade Watches for Handcuffs
With all of this gloomy news, it’s pretty hard to summon the courage to invest in the stock market.
Well the first half of 2008 wasn’t exactly stellar for the stock market.
The U.S. stock market was down by 10.9 percent as measured by the Vanguard Total U.S. Stock Index Fund (VTSMX), while the international stock market was down 10.2 percent as measured by the Vanguard FTSE All World Ex U.S. Index Fund (VEU).
Nearly two years ago, I was reading the local papers and came across a couple advertisements. One offered to lend me money at a rate just shy of 3.16 percent, while the other offered to pay me 7.12 percent for investing my money.
The old saying “what looks too good to be true probably is” immediately came to mind. And after investigating the advertisements, it turned out they were both quite deceptive.
It seems to me that investment bubbles are happening faster than ever. And the impact when these bubbles burst seems to be getting worse and worse.
We are very early into the new century and we’ve already seen three investment bubbles pop, destroying massive amounts of wealth.
<strong>The Tech Bubble:</strong> Just as the new century was beginning, we seemed to be worried more about Y2K than about the rationale of the new age economy.
I’ve been writing about personal finance for some time now, and I’ve got to fess up that there’s one glaring hole in my family’s financial plan. That hole is health care.
In fact, if my premiums keep going up at the current rate, I calculate that my annual premium will be about $140,000 a year in 15 years, hopefully just before I become Medicare eligible.
Reading the market headlines lately is enough to turn us all into nail-biters.
“World stocks plunge” and “It’s another horrible day” are pretty representative of the doom and gloom these days. What is the average investor to do in the face of all this stomach-dropping, scary news?
Let’s start by looking at the facts, in both the short-term and the long-term.
Tis the season where the media and stock market gurus make their 2008 stock market predictions. For years I have resisted the temptation to make my own predictions but, alas, I can resist no more.Continue reading …