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The Market Will Drop...Eventually

Who took my tea leaves? I'm going on CNN in five minutes!!!
Who took my tea leaves? I'm going on CNN in five minutes!!!
Photo by Spencer Platt/Getty Images

There is an old expression that "trees don't grow to the moon". It means that eventually the good times will come to an end, and that which has risen, shall fall.

I bring this up in light of the bull market we have been experiencing since the financial crisis of 2008/2009. If you turn on most any form of financial media in the last few months you will hear "gurus" and "experts" warning investors about the next great bubble and its collapse. When pressed for details like "when", their responses are a coy and ominous "soon". One particularly gloom and doomer, Harry Dent, recently told Fox Business "any day". But to be fair, Harry has been saying that since 2010, so when it finally does happen, he will claim that he knew it all along.

So lets take a moment to catch our collective breaths, and go over some Truths of Investing (shameless plug).

  1. The market will go down, and up again, and down again. That risk and volatility is what produces returns.
  2. Trying to time the market is impossible. We love to showcase the people who guess right, but they just got lucky.
  3. You can't tell which stock or mutual fund is going to be successful until it happens. Afterwards it's too late.
  4. Today's hot money manager is never tomorrows. (See number two.)
  5. If Wall Street knew what the Next Big Thing was, they wouldn't tell you? Probably not.

I know that isn't as much fun as the story Wall Street sells. It's more fun to watch talking heads yell, blow horns, and ring bells about the latest tea leaves, crystal balls, or charted analytics readings. The truth is boring. So if you are ok with boring, follow these rules:

  1. Be Invested; you can't do anything sitting on the sidelines. Start today, even if it's small.
  2. Diversify; own non-correlated asset classes so when your large-cap stocks drop, your international small-caps will shine.
  3. Rebalance; the market has been on fire. Why haven't you sold some of your gains to prepare for the correction?
  4. Get help! If you don't have a financial coach, get one! They will have taken care of numbers one and two already. Then he/she would have told you to stop reading financial media like this, because you don't need it.

So remember this before you listen to the tv know-it-alls: If they knew the market was going to drop, why would they tell you, instead of shorting the market and cashing in?

One more lesson from 2008/2009 if you stayed invested and rode it out, you are now ahead of there you were before the crash. If you listened to the talking heads and got out, you missed the rebound and locked in your losses.