Weekly Roundup: Where’s the Market Headed?

Over the last year, the market has made a nice rebound, and fortunately many have seen some of their wealth on paper restored (those that didn’t get out at the bottom and give up, that is). I’m far from a market expert, but it does seem things are still on shaky ground. Would love to hear from those that follow the markets closely.

Where do you think we’ll be this time next year? Repeat of 2008, more positive gains, or sideways? I personally believe we’ll see some of all three over the next 12 months, but I hope we see a general positive trend by year end.

The Frugal Roundup

When to Quit Traveling. Baker is back in the states and contemplating what to do next. (@Man vs Debt)

Proof That Frugal People DO Have a Life. Yep, we do! (@Being Frugal)

What You Need to Know About Co-Signing a Loan. Here is a great list of things to think about when that “special someone” asks you to be a co-signer. (@Gen X Finance)

Best of the Rest

That does it for this edition of the weekly roundup. Hope everyone has a great weekend!

Comments

  1. I think its is difficult for anyone to look at the market on a short term basis. Week-to-week or month-to-month, the picture is pretty cloudy. However, over a long term basis (20 years or more), the picture becomes much clearer. The biggest trap which all of us (myself included) fall into is listening to the media and falling for the “gloom & doom” stuff. I’ve had several opportunities to study recent history (past 100 years) and it is AMAZING how many times the media has told us that the “sky was falling” and life as we know it would cease to exist.

    Believe it or not, the 1990′s was one of the biggest bull markets we ever had, but if you check headlines and major news stories of that period, we still had plenty of fear in investing. (LA race riots, flooding in the midwest, the market growing ‘too fast’, defaulting on bonds in Europe, tax hikes, Gulf War, etc.)

    The best thing you can do is NOT listen to the news, and stay diversified. Warren Buffett himself says that he isn’t smart enough for market timing. If Warren can’t do it, I know I shouldn’t even try to time the market. Stay invested and stay diverse.

  2. Marci, you make a great point which I think it can be easy to lose sight of.

    Whether you own stocks or mutual funds, the only thing which changes is the value on paper. You keep the same number of shares. If you have something which pays dividends, you get to add shares – and if the value is down, you get to add shares at a lower price when the dividend is re-invested.

    The value of the stock or fund may fluctuate day to day, but the number of shares stays the same (unless you sell), and you can add more shares when you re-invest dividends.

    A simple concept, but also one which is easy to forget.

  3. Where do you think we’ll be this time next year?

    It pains me to see you ask this question, Frugal Dad. You are one of the smartest people on the internet (and I am not a flatterer) and you need to learn why it is a bad idea even to ask this question.

    No one knows the answer. Not the smartest person in the world. It’s a waste of time to devote any mental energy to this (yes, that’s just my opinion but there is a wealth of research backing up this opinion). To the extent that people focus on this question, they are taking attention away from the more important questions that they should be thinking about.

    The question that matters is — Where will stock prices be in five years or ten years? That one we can know. The same research and data that says that we can never know where stocks will be in a year also says that we can always know where they will be in five years or ten years. So that’s what people who care about their money should be focused on.

    Stocks offer a poor long-term value proposition at the prices at which they are selling today. They may do amazingly great over the next 12 months. But those who are heavy in stocks today are in all likelihood going to regret it five or ten years down the road. The safer asset classes today offer the better long-term value proposition. (But that will change in coming years and we need to be teaching people how to know when the change has taken place.)

    Rob

  4. Rob, I have to respectfully disagree. I don’t think we can possibly know that the market will be down in 5 or 10 years. Actually, if you went by traditional teachings, I think people would assume that the market would be up in 5 or 10 years. I agree that stocks may be overvalued right now, but you can never predict this market. I would have never thought stocks would be as high as they are now given the jobs market, Greece, Portugal, etc.

    Also, I think 18 months ago, people putting all their money into cash thought those staying in the market would regret it. However, the returns since that period have been fantastic. Is it realistic to expect those types of returns to continue? No. But I don’t think there is zero room for growth.

    My apologies if I misread your comment.

  5. Frugal Dad

    You are trying to time the market when you ask the question if the market is going to be up or down in a year. DO NOT TRY TO TIME THE MARKET. YOU WILL BE PLAYING WITH FIRE WHEN YOU DO THAT. TIMING THE MARKET IS NO BETTER THAN GAMBLING.

    Invest in stocks only if you have a time horizon of greater than 5 years. If you would want to take out your money before that then invest in bonds.

    I thought you would know better before you posed this question to the readers. Hey I can open a personal finance blog too and do good at it…..May be a lot better than present finance blogs.

  6. Guys, I think you’re reading too much into my question. This was the kind of thing you ask friends while sitting around over a cup of coffee. I’m not looking for any deep analysis; I just like to survey what readers think from time to time.

    This was not an endorsement for or against buy and hold investing, market timing, or any other stragegy.

  7. Rob, I have to respectfully disagree.

    Lots of smart and good people disagree with me, Cris. I am grateful to you for presenting the other point of view.

    Rob

  8. It’s gonna go up and down….run up, profit taking, drop down, repeat repeat repeat…. and we are so in turmoil as a country which I doubt will straighten out for a couple years, and we are tied to overseas markets, which is part of the reason for the 213 drop 2 days ago….. So, who can see the future? no one.

    But…I stay in, diversified, conservative, and debt free, and figure it will all work out in the end… or it won’t… and I’ll worry about it then. Debt free, I’ll be ok either way. I still am of the opinion that I haven’t lost anything til I pull the money out….and as I haven’t, then I haven’t lost :) I still have the same number of assets – just their allocation in the minds of men has changed.

  9. Frugal Dad

    If my friends asked me this question over coffee, here is what I would say.

    Whatever money you have right now in stocks, keep invested. Keep putting in more money when the market comes down. I agree that market is a little over valued right now. IN FACT THE MARKET’S FAIR VALUE RIGHT NOW IS 1.06. YOU NEED TO BE INVESTING WHEN IT IS BELOW 1.00

    KEEP INVESTED IN STOCKS FOR THE LONG TERM.

    My guess is that US stocks would return an average of 7-9% in the next decade. 9% being overly optimistic.

    So keep invested in stocks and forget the daily market banter.

    Happy investing…

  10. Dean – It’s the same way I look at my mortgage free house… It doesn’t matter what the present “value” is… it is still the same paid for roof over my head. I live in it and will probably til I die. My housing needs are taken care of forever (provided I die at home in my sleep… my hope ) So what the value is doesn’t matter to me – it’s just a number on paper that my heirs can deal with. For me it’s all about the asset – the roof over my head – the tangible, and not a number on paper. …..and that’s how I look at my stocks etc. also.

    I understand that if one is planning on selling a house, then sure, they can worry about the value. But I’m not in that boat :)

  11. Marci, your perspective is always refreshing – and makes me step back and look at my occasional worries over investments. I particularly love the way you think of your home, because it very much lines up with the way I think of our current house (the one I plan to pay off and retire in).

  12. My refuge in the storm of Life :)

    Jason – email me anytime you’re worried and need my unique viewpoint :) LOL!

  13. Definitely a question that really has no clear definitive answer. I am just starting to invest in the market, thought about putting my IRA off until the market comes down again, but i think im just going to start and let the market do its thing over the next 40 years. Its obvisouly better than keeping it in cash making less than 1% interest on my savings account. Would you guys start out now or wait?

  14. I had this idea the other day that we are headed for a decade of very slow and steady returns in the stock market with low volatility. A lot of people predict high volatility in the next year to five years and I thought, well, that’s probably based on the near past, so the contrarian would say that smooth sailing is in store…

  15. Remember when market expert James Glassman wrote Dow 36,000 during the midst of the dotcom craze? Well, we may get there one day, probably not in this decade. People should be concentrating on accumulating assets according to their preferred allocations, and not worry about where the market is heading, today, tomorrow, or next year. According to the Gordon Equation, it won’t be a spectacular decade for equities, but who knows? Speculation, low interest rates, and liquidity may trump the day.

  16. Stephen- I would definitely start now. As has been said, you cannot time the market. If you invest in your IRA, you will invest both when the market is high and when it is low. Sure we may be at a high, but we also may have further up to go.

    Congrats to you in starting with 40 years to go!

  17. Man you buy and hold types are like religious zealots… no point even bringing up certain subjects.

    Virtually no one here accepts the possibility that the market could be flat, or down, for decades.

    Personally, I think there will be new lows within the next 2 years.

  18. It’s all rather funny to me — all the speculation — because I am the ultimate contrarian: I’ve never had anything invested, nor anything to invest — not even into a home. I dropped out of the job world some 40 years ago when I had just about nothing… decided I didn’t want to live a commercial life, and paid the immediate price of learning how to live in poverty. It was a learning process, for sure . . . but like surfing, I suppose, one gradually gets the skill, and a lot more with it! Like a whole-going shift in values and the discovery of rather spiritual or mystical things. In the end, I’ve had a very lovely latter-half life (I’m 83 now), a few books written, a bio in Who’s Who, and less than a year ago I did a 5-day, 3-state hitch-hike for the fun of it.

  19. I think it depends on what the baby boomers are going to do and what starts happening as they retire and start kicking the bucket. I think if they all decide to cash out of stocks when they retire, it probably will have an affect.

  20. Since I’m in the accumulation state I hope that the market stays down for many years so that I might buy more shares cheaply.

    However, I’ve no idea where the stock market is heading next year, but no one else does either. But in the long run I expect my stock market investments to give me a profit, for otherwise I would not invest.

  21. @Rob Bennett – IMHO it’s a valid question. While its true that you should be looking at investing in the market for the long term, shouldn’t you also be looking at balancing your portfolio yearly?

    @Raghu – if you feel that the market is over valued right now, then shouldn’t you change your strategy? I don’t mean stop putting money into your 401/IRA, but switch from growth or large cap to dividend or bond funds?

  22. FrugalDad is right. Sometimes, a simple question can lead us to the right direction. There are questions that should be asked – even those that are impossible to answers. If we can’t find solutions, at least we can find remedies. So where are we heading in this type of market and economy? Although we don’t know the destination, at least we know the direction.

  23. I am in the market for the next five years. We will both be retired then and (as Sandy smartly sees) we will take all of our money out and put it in the bank at (hopefully) higher interest rates.
    I figure that we bought at the bottom (6900) solid companies with dividends. IF the market is flat (hasn’t been yet) then we will continue to make money off of the stocks in dividends. We are done buying- and we will hold.
    Personally, I only see blue sky for the market. Europe may be in trouble and oil may become an issue again- but people will always need food and toilet paper, our country will continue spending for defense, Harley sales to the boomers is WAY up, fields have to be plowed and Americans love to be entertained….
    We are half cash/ half stock. So far the stocks have gone through the roof since two years ago(oh darn it went down 200 from 11,000).
    Five years from now- I don’t have a clue….
    The only thing that can stop the US market now is another attack. At that point it won’t matter where our money is- we will be planting crops on our our debt free land.

  24. @ Irv, thanks for the input, I googled you and will have to read your websites. I too dropped out of the job world at age 50 and still get the hairy eyeball from people for not being employed as I am too young not to in their minds. I now wish it could have been sooner.

  25. Vic sez…
    “Although we don’t know the destination, at least we know the direction.”

    I’m glad (for you) that you know the direction. Time-wise, everybody knows the direction, but market-wise I’m only amazed at the confidence and hope it comes true for each of you.

    And to “almost there”: I appreciate your validation. Just ignore folks who can’t seem to ‘get the message’ without getting it beaten into them.

  26. Whether the market is headed up or down is impossible to tell (at least for me). I just need to make sure I stay in the market and not try to time getting in and out of investing based on feelings. Not consistently investing over the last twenty years is what has hurt me…..

  27. My perspective is that the market is headed up between now and the time I need the money – retirement!

    As I get closer to retirement age, I’ll start increasing my cash and bond allocations, but until then, market drops are just stocks going on sale for me. :)

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