It’s late 2021 and the U.S. stock market is at an all time high. A lot of the world markets are that way, but particularly the U.S. stock markets.
I’m getting a lot of questions because of this: “Should we take some money off the table?”, “Should we do something because the markets are at an all time high?”
The way I interpret that question, and what I really think people are asking is: “Can stocks go up forever? Because they’re at an all time high, shouldn’t that mean that we should just take a break for awhile? Can stocks really go up forever?”
Let’s start by addressing the question, “Will stocks go up forever?” I believe the answer is yes, but there’s a little bit of nuance to that. Over a long period of time, I believe stocks will go up forever. The reason for that is because if you think about what the stock market is, the stock market is really a broad measure of an economy. And our clients’ investments are diversified all over the world so they’re not just invested in the U.S. stock market, they’re invested in the world stock market, bonds and real estate. When you put all those things together, you are a participant in the world economy.
So, when asked the question “will the markets always go up?” I also ask “will the world economy always grow?” and over periods of 3 and 5 years, I don’t know. But, over the periods of 7, 10 and 15 years, I’m confident the answer is yes. The reason for that is because, over a long period of time, we have to believe that the world will always be improving. Productivity and innovation will always be improving. That translates into the world economy always growing and growing at a pace that outpaces cash.
Another way of saying that is, it’s basically a way to keep pace with or outpace inflation. If we just own cash and put money under our mattress, we’re going to lose out to inflation. This is why we take the risk of investing in the first place.
I have confidence and I think most people have confidence in productivity and innovation over time. In other words, we believe that the world will approve and that translates into economic growth, which translates into stock market growth. Now the difficult part is that the trajectory is non-linear. It’s not just a nice perfect straight line. There are a lot of market participants and factors that cause the markets to fluctuate.
You’ll always have people making bets that the market is going up or down over the short term, which it does. However, I believe productivity and innovation will always, overtime, improve. Therefore the reality is the stock market over a long period of time should always go up.
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