Stock Market at All Time Highs! When Is the Other Shoe Going to Drop?

Stock Market at All Time Highs! When is the Other Shoe Going to Drop?

We’ve seen nothing but headlines about the glory of the present stock market’s performance. If you are investor at any level, you’re probably pretty pleased about this. Ever since the Dow crossed 20,000 points, we’ve been in uncharted territory. However, there are some aspects of history which might offer a glimpse at what the future holds, and all of the news is not good.

The stock market goes in cycles. Different academics have different numbers about how this works (some say twelve years, some say seventeen), but one thing is certain: “What goes up must come down”. The financial crisis of 2008 wasn’t an isolated incident. Since the founding of our country, the US stock market has had a series of crashes and rallies. It’s also important to understand that we’re due for another.

There have been about 96 months since the last recession (starting from November 2008). The United States financial markets have been in constant recovery ever since. 96 months is the 3rd longest economic expansion in the history of the country. The longest economic expansion of all time was 120 months, from March 1991 to March 2001. Many people have been giving Donald Trump credit for the recent bump in stock prices, and that’s not entirely unfounded. But it doesn’t take much math to understand that the 48 months of a typical Presidential administration, when added to the 96 months the country has already been in recovery, equals 144 – a much longer time than the longest period of economic expansion in United States history.

What does this mean? Well, if history is any indication, the next economic recession should occur in the not-too-distant future. However, there is no reason to panic. There are ways to prepare.

1) Increase Your Investments in Things Like Gold and Bonds. These investments are as close to recession-proof as you can get. Look at historical gold prices to see just how much they’ve endured through hard times in America’s history. Bonds, especially in the form of ETFs and mutual funds, are a great way to make money grow reliably, without much risk of value loss. If you add a little extra allocation to your bonds, when the trouble comes, you can sell them and buy up stocks on the cheap!

2) Stay the Course. If you are an experienced investor, you might have a plan that takes all of this into account. A reliable investment maxim is that it is not wise to try to “Time” the market. Timing the market means trying to take your money out of investments just before a crisis occurs, or bringing it back in just as a crisis resolves. The problem is, people tend to guess wrong, not being able to predict the future and all. Time in the market is better than timing the market.

There will be another economic crunch at some time in the future. American markets might beat all previous records and avoid a crash for an unprecedentedly long time, but just in case it does not, there are good ways to prepare.