Financial Adviser’s Take on the Economy

by David Ning · 11 comments

financial adviser gives advice for the current economic crisis

I followed my coworker a few days ago to a seminar hosted by his financial adviser about the economy and the stock market. Apart from the expected pitch about why their firm is solid and solvent, there were quite a few insightful and interesting comments about investing and what’s going on so I want to share these with you.

This is in no way everything we need to know but I found it pretty informative and hope that you do too.

Expect a Prolonged Period of Slow Economy
Stop hoping that the economy will recover tomorrow because we are just starting to see the slowdown. Technically, the US is not even in a recession yet. They are predicting that the US will enter the recession in the 2nd quarter of 2009.

Bad Economy Does Not Always Equal to Bad Stock Market
One of the speakers came up and gave some very interesting stats.

  • The shortest recession was 9 months and the S&P dropped 46% in that time period
  • The longest recession was 32 months where the S&P happened to also drop 46%

The longest recession was really a depression but the stock market wasn’t any worst off than the shortest recession.ย  He also went on to say that statistically, the best time to invest in the stock market is 4 months before we get out of a recession.ย  Obviously, the million dollar question is when we will get out of the recession but this is really anyone’s guess at this point.

Internally, they are predicting the DOW to go to 7,500
I thought falling from 14,000 down to 9,000 was pretty bad, but they believe that the DOW is in for another 1,500 point drop. When we asked why we shouldn’t just sell everything and wait till it drops down to that level and then buy, their response was thought provoking.

If you are really disciplined, then you can try it but it’s not like the 7,500 is a guarantee. We could be 8,500 or even 6,500 and the majority of the people who sell everything are always going to wait too long to get back in. They will keep telling themselves that it’s still too early to get in and miss the huge jump at the beginning that sparks the recovery.

Unless You Have a Crystal Ball, Regular and Consistent Investing is the Only Way to Invest in the Market
So much of the short term movement is going to depend on what the government does so there is really no way of knowing how the stock market will react in the short term. The only way to invest is to put money into the stock market and rely on the American economy to right itself and prosper in the long run (which historically it has done quite well).

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{ read the comments below or add one }

  • Carol G says:

    I linked to this from my blog but also added the interactive dow jones site there carolsenergynotes.wordpress.com. Give that Dow timeline a look-see and then consider the number 7,500. It can sink a lot further, don’t you think?
    Carol

  • Soul Ease from HzJEEP says:

    Thanks for the worse case scenario, we should really make necessary precautions facing the hard times in future. It’s awakening somehow…

  • Investment saint says:

    Invest only on first quater for US stock, invest only on 2nd quater for the rest of the world 2009. And sold everything just before it hit 2013, Jan 13…let watch and see whether i am right. Just a guts feeling..haha

  • Natasha says:

    People need to stop burying their heads in the sand and plan how to get through this recession. People are so willing to make plans during the boom of an economy, but want to ignore the fact that this is a real risk.
    Until my spouse got made redundant yesterday I was guilty of not acknowlaging the seriousness of this economic downturn.

  • James - Forex Trading Blog says:

    I agree the best thing is just to drip feed money into shares at these levels. There are some unbelievable bargains out there at the moment so as long as you pick solid companies with little or no debt then you could make substantial gains in the next 2-5 years.

  • marci says:

    My original thoughts were that it would stop before it hit 7000 – but that it would be in the 7000’s at some point.

    However, I’m just a old lady ๐Ÿ™‚ LOL.

    It’s gotta do what it’s gotta do to get back to being based on reality and not on overinflated hot air. Settle in, get comfortable, and ride it out. ๐Ÿ™‚ There are a lot of much needed adjustments that will have to be made.

  • Joseph says:

    I’ve got to add my blessings on this as well. There is no way to time the end of the recession, or the end of the stock market decline. Therefore the only logical thing to do is to invest smaller amounts over time.

    Good post.

  • Jerry says:

    I was surprised to see news stories in the past 48 hours talking about the factors that will lead to the impending recovery, when it doesn’t look like we are anywhere near the bottom yet. I am following this story from SE Europe right now, but it doesn’t look good for the home team at this point. Still any wise investor (who is holding on through the storm) would want the insurance provided by diversification, as Kevin pointed out.
    Jerry

  • Kevin Wright says:

    The bad part is the older people close to retirement who were not properly diversified. They are hit HARD. The good part for me is that I am young enough that I am going to be able to start really pumping in money to my retirement accounts during this down turn and quit possibly make some nice returns when I retire.

  • philip says:

    The difference in 9 month vs 32 months for the length of recessions may have something to do with the government trying to intervene with free market and not allow the 46% that IS going to occur to go ahead and happen. Then you can get back to your regularly scheduled markets after 9 months instead of 3+ years of them stretching it out. Stop the bailout and buyouts of banks, let em go and start where we are headed anyway.

  • MoneyNing says:

    As this post is published, the DOW is already closer to 8,000 than 9,000. Yikes.

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