I think it’s pretty easy to argue that the Stock Market has been forming a Bubble for quite some time, but the bigger question is, what should you DO about it? Here’s the problem…even if we know for a fact that a bubble is forming, we still don’t know how big the balloon is so it’s impossible to say when it will burst or how bad it will be. For example, if the DJIA is currently at 17,000 and we say a Bubble is forming, but it doesn’t ‘pop’ until 22,000, at which time it drops to 18,000 – we were right about the Bubble, but still missed out on making money. This is why you should never try to time the market! There are more variables than just whether the market is over-bought or over-sold, etc.
Check out the article I published on Jan 1st of this year if you want to see the politics behind why the Markets continue to move higher: The Stock Market will go higher in 2014-2015, this is why…
With all these variables to consider and many of them completely unpredictable and unknown, the best thing you can do is prepare yourself for all possibilities. If you have planned your investment strategy well, you may have already done this. Try to keep these things in mind at all times…
#1 – The Stock Market going down is not necessarily a bad thing. It is only bad if you’re currently pulling money from the market to live, but if you’re using money you need to live as an investment in the stock market, you’ve got a hole in your head to begin with. Personally, I want to see the Stock Market go down. Why? Because I invest the same amount of money every month into a fund (IVV) and the lower the price is, the more shares I get to buy. Also, I am decades away from using my retirement for income or to survive, so it’s much better for me to have a lower price point now while I’m putting money IN the market and have it be a higher price in the future when I’m ready to take my money OUT of the market.
#2 – Ignore the dooms-day’ers. They are always chattering about the next CRASH in the markets. Funny thing is, every once in a while, they will be right and they’ll never let you forget it. Even Ron Paul is singing the CRASH song right now. Check it out… Ron Paul: Stocks are in a bubble and will crash – the more people talking about a crash, the less likely it is to happen. ‘Crashes’ usually take place when no one is expecting it.
#3 – If you are nearing retirement and you have moved your money out of the stock market and into the bond market, then a stock market sell-off could potentially work out very well for you. If the stock market takes a dive, bonds should get a nice pop which will make your portfolio of bonds worth more money! New bonds will be more expensive and pay less yield, but the ones you own should go up in value.
The #1 thing you can DO to combat any concerns about a Stock Market Crash is to have a solid financial plan in place. That is the only way you can feel confident, like I do, about anything that happens in the market.
– If the market goes down, I’m getting more shares for my money.
– If the market goes sideways, I’m still saving money for retirement.
– If the market goes up, then I’m making money.
All of these things are true because I have a plan in place where I’m making regular investments every month at a fixed amount. This affords me all the benefits of dollar-cost averaging along with the security that I’ve got a good situation on my hands one way or the other. If you don’t have a financial plan, I would highly suggest contacting Dan Osgood, author at www.FreeInvestmentAudit.com – he has been coming on my show for years and is brilliant at coming up with solid game-plans in any situation.