I Predict The Next Stock Market Drop -FCP008

“Predicting rain doesn’t count. Building arks does.”

— Warren Buffett

What’s the market going to do?

That is almost always the “question of the day” when it comes to most people’s interaction with the world of finance and money. I still get asked this question by many people when I tell them that I do Financial Planning. They’ll say, “Oh, you’re a financial planner-what’s the market going to do?” I find it very interesting, and a little maddening. Why?

Because the “market” has almost zero influence on the day to day financial reality for most people.

With that as a reference point here’s a bit more recent market history and my “Prediction” for when the next stock market drop will happen.

Stock Market Stuff

The stock market (represented by the S&P 500) closed at 2581.07 on Friday, October 27th, the last full market day prior to this recording.

A year ago it was at 2133. Five years ago it was at 1412 and on March 9, 2009 (the bottom of the last bear market) it was at 676.

The market has gone up about 278% since March 2009. That means it has to crash soon, right?

My Prediction:

Here’s my market prediction- The market will drop at some point! But we have no idea when or by how much.

Some context to what the market’s ups and downs are:

5% Drop: Last one was more than 14 months ago

Correction: 10% drop, last one was more than 19 months ago

Bear market: 20% drop from most recent high. Last one started 10 years ago

Bull Market: extended rise in value, typically 20% or more. We’ve been in one since March 2009

Since 1980 the market has had positive annual returns in 28 out of 37 years, even though the average intra-year (within the year) drop of 14.1%

Since 1929 the average bear market has lasted 24 months and had a -45% loss BUT the average Bull market has lasted 54 months and given a 154% gain

How to Deal with it:

  • Market gyrations will happen and we can’t control them.
  • Don’t make extreme decisions based on forecasts.
  • Risk tolerance (risk you can take in terms of volatility) vs Risk Capacity (risk you need to take to meet goals) needs to be considered, not just the market.
  • Focus on what you can control (goals, savings, allocation, attitudes).
  • Planning helps you build your “ark” to carry you through the ups and downs of the market

The Fun Money Segment-The Fun In Trying Something New

Sometimes one of the best things we can do to increase the fun in our lives is to try something completely new, just to mix things up.

It’s easy to stay in our comfort zone, doing the same thing, maintaining the same routine, going through life on an even keel. We do this with nearly every aspect of life, from our job, where we live, who we hang out with, and the activities/hobbies/passions we pursue. There’s something safe and comforting about that. On the other hand, there’s an element of “danger” or unexpectedness in trying something new. We’re often tempted by that but our inner self usually pulls us back from doing anything and we drift back into our “normal” routine.

Well, life is all about experiences, and I believe the more we have the better. It’s kinda hard to experience new things if we stay in our same old patterns all the time. So, to mix things up, try something new! New experiences don’t have to be time-consuming, dangerous, or expensive. It’s really just a matter of expanding your box of safety a little more than before. Chances are you might not like every new experience but there will be a few that click with you and open up an entire new world that you never knew existed! Here are a few affordable suggestions:

  • Try that new restaurant with the name you can’t pronounce
  • If you like to read but find yourself reading the same genre of book, try a new one, say romance instead of the usual science fiction. Maybe “Fabio in outer space”?
  • Try out a new hobby, something that you might not have ever considered in your pre-adventurous days. It could be a new sport or activity, anything you previously have never considered. For me, drawing is that hobby. I’ve recently picked up a few supplies and a book on learning how to draw. I’m going to dedicate some time over the next few months to exploring my inner Rembrandt and see if I can expand my skills beyond stick people. I’ll report back from time to time with my progress.

Whatever you decide to try, open yourself up to the experience, try not to prejudge your reaction and just go with the flow. You might be surprised with the result! Have Fun!

Contact and Connect

Remember, I’m always looking for feedback, comments and suggestions on how I can make this podcast better. Just email me at mark@financialclaritypartners.com with your ideas, comments and suggestions.

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Twitter: @PlanWithClarity or @MarkSinderson

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