Can Doctors Trust the Stock Market [Video]?

Posted on September 2, 2014 by Dr. David Edward Marcinko MBA MEd CMP™

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By Rick Kahler MS CFP http://www.KahlerFinancial.com

Rick Kahler CFPIf you keep your life savings in certificates of deposit or a savings account at your local bank, that decision may be based on a common money script: “You can’t trust the stock market.”

This belief about money can keep you from making the most of your retirement savings.

Money Scripts

I was recently interviewed by Clark Palmer for a Bankrate article about money scripts. Palmer did quite a good job of explaining money scripts, the largely unconscious beliefs about money that we all hold and that affect our behavior around money. Many of these scripts are developed in childhood. Typically they are only partially true, but sometimes we follow them rigidly even in circumstances where they are not accurate. This usually doesn’t serve us well.

Clark Palmer Speaks

In describing the problems with adhering to rigid money scripts, Palmer made this statement: “For instance, distrusting the stock market would have made a lot of sense after the economy collapsed. Since the stock market has rebounded in the past few years, it no longer makes as much sense to distrust the stock market.”

This example actually replaces one money script: “You can’t trust the stock market,” with another: “You can’t trust the stock market in poor economic times, but you can trust it when the economy is doing well.”

This second script sounds like a recipe for exactly what many investors did during the recent recession. When the market crashed in 2008, they sold stocks, taking huge losses in order to move their nest eggs out of the frightening world of the stock market and into CD’s or money market funds that seemed more trustworthy.

Missed Opportunities

Yet, by getting out of the market, they missed the opportunity to have their holdings regain value as the market recovered. Their savings earned safe but meager returns and didn’t decline further in value, but they did lose purchasing power by never regaining their losses. Now, with the market back up and appearing more stable, it seems worthy of trust again, so some of these same investors are buying stocks. The trouble is, they are now paying a premium to get back into that “trustworthy” high market.

Does this mean the first money script, “You can’t trust the stock market,” is true after all?

Not at all.

What you can’t do is trust that the market will always go up. You can’t trust that it will always go down, either. You can’t trust stocks that provided high returns over the past ten years to do the same in the upcoming decade. You can’t trust investors to make decisions about buying and selling in logical ways based on economic principles—partly because many of those decisions are based on money scripts.

Gurus of the Moment

Nor can you trust yourself or anyone else to successfully time the market, buying at just the right low point or selling at the perfect high. This is true even though there is usually a “guru of the moment” who manages to do exactly that through sheer luck.

What you can trust is that the stock market will do what it has always done. It goes up and down in response to a complex set of economic, emotional, and political factors. The way to trust the stock market is to accept the reality of what it is.

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Assessment

Here, then, is my suggestion for a more accurate money script about the market: “You can trust the stock market to do what it does, which is fluctuate.”

This is why the wisest strategy for most investors is to trust the market over the long term with a well-diversified portfolio.

VIDEO LINK: https://www.youtube.com/watch?v=KcjUbzRwKj8&x-yt-ts=1422411861&x-yt-cl=84924572

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Conclusion

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3 Responses

  1. Mumar, on September 30, 2014 at 11:21 AM said:

    Market Highs

    “Stock market capitalization is now 203% of GDP. At the great depression it was 87% of GDP”; according to James Rickards PhD

    So; no doubt about it, this is the bubble of all bubbles right now.
    Any other thoughts, Rick?

    Mumar

    Like

  2. Ann Miller RN MHA, on November 5, 2014 at 12:37 PM said:

    US stock markets psyched for GOP win

    Markets are psyched after a Republican victory in Congress that gives the GOP control of the Senate in addition to the House.

    http://www.msn.com/en-us/money/topstocks/us-stock-markets-psyched-for-gop-win/ar-BBd0Vh9

    What does this mean for healthcare?

    Ann Miller RN MHA

    Like

  3. Seth, on April 10, 2015 at 11:22 AM said:

    How To Protect Yourself From Wall Street Insiders

    Insider trading is deeply woven into the fabric of Wall Street?

    Recent revelations about the illegalities of information flows at expert networks and hedge funds like SAC Capital signal, I hope, a long overdue decline in amoral activities that Wall Street insiders have exploited for decades to score outsized riches while the average investor is often left holding the bag.

    http://wealthmanagement.com/blog/how-protect-yourself-wall-street-insiders

    This article explains how the average investor can and should even the playing field with Wall Street insiders.

    Seth

    Like

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