Worried about the fiscal cliff that will supposedly send the U.S. into a recession and the stock market reeling? Is the USA, like Thelma and Louise, driving itself of a (fiscal) cliff? What is the fiscal cliff? Reporter Jill Schlesinger explains the fiscal cliff in the above video.
As we’ve repeated often in the space of this blog, we’re reminded once again that it is impossible to predict or forecast how the market will react to events – including a fiscal cliff. The outcome is simply unknowable. Will the market react? Of course. The market reflects the logical and emotional decisions of millions of participants. The market is a veritable information processing machine (thanks FA Hayek for that analogy) taking the unknowable and unpredictable information (news) and factoring it almost instantly into the current market prices.
So your best bet is to stay the course and stick with your plan. Altering your long-term strategy based on conflicting short term predictions from the economist and politicians is likely to add more risk than reward. Over your investing lifetime, the odds favor maintaining a disciplined, diversified exposure to global stock and bond markets rather than following doomsday predictions or forecasts.
Writing about the fiscal cliff phenomenon, Mark Hulbert from CBS Marketwatch shared this insight:
But my 32 years of closely tracking the market has taught me that the markets more often than not get the last laugh on things like this.
Remember Y2K, the hysteria that gripped the financial markets in late 1999 about the computer infrastructure’s inability to recognize the year 2000? Prophets of doom were forecasting everything from planes falling out of the sky to the entire power grid suddenly going dark.
And yet, it was one of the best periods for the stock market in decades. Over the just the last three months of 1999, in fact, the Dow rose by more than 11%. The Nasdaq Composite did even better, gaining more than 50%.
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Wealth and Business Planning Group, LLC (The Financial Quarterback™) is a Registered Investment Advisor in the State of Florida that provides Fee Planning and Asset Management. Depending on your state of residence, Wealth and Business Planning Group, LLC (The Financial Quarterback™) may not be able to immediately provide services. For more information go to www.thefinancialqb.com. Richard E. Reyes, CFP is an Investment Advisor and President of Wealth & Business Planning Group, LLC (The Financial Quarterback™).