Investors Are Being Advised to Invest in Bonds or Dividends

It is interesting how history repeats itself, yet few seem to understand this. Our economic world revolves in cycles, and each cycle is remarkably similar to the ones before and to the cycles that will be experienced in the future. As we near the bottom of this current cycle, the stock market has fallen to lows, investors are beaten up, and faith in the long term benefits of the stock market has mostly disappeared.

This is coupled with financial scandals where Wall Street executives, and the barons of industry are exposed for money hungry uncaring, greedy and unconscionable people. Portfolios have been severely hurt, and negativity abounds. Bad news stories abound in the newspapers about further stresses to come, and worry and concern are in large supply.

The newspaper USA Today just published a comparison of the drought in 1933 to today's drought. The article brings back images of the "dust bowl" of the Great Depression. Another article promotes fear of the stock market.

Headline in USA Today Last Month

The print edition had a center column, above the fold, screaming green headline "Invest in stocks? FORGET ABOUT IT." .... The story read "On Main Street these days, investing in the stock market is about as popular as watching a scary movie on a 12-inch black-and-white TV.

Fear and uncertainty is pervasive. Whether you apply identical descriptions to the many economic cycles before, or the current phase of the cycle that we are now in, the description fits very well.

Wall Street's long-running story about how stocks are the best way to build wealth seems tired, dated and less believable to many individual investors. Playing the market isn't as sexy as it used to be. Since the 2008-09 financial crisis, the buy-now mentality has been replaced by a get-me-out, wait-and-see, bonds-are-safer line of thinking.

Understanding the Future

There seems to be remarkable similarities in every economic cycle. Investors rush into the stock market. More and more people talk about the stock market. Investment newsletters grow in number, TV shows and commentators devoted to the markets increase in number. Then, the inevitable downturn comes. The current inevitable downturn is more pronounced than most because of the massive amounts of money and debt created by Allan Greenspan, the previous chairman of the Fed, yet the downturn would have come regardless. It is just worse because of Mr Greenspan.

As the downturn proceeds, bad news pervades everywhere as the media reports devote themselves to the current mass interests, which interests border on fear. The mood of downturn becomes more pervasive, investors flee investments in search of safety. It almost seems as if there is a preordained order of things whereby until investors give up hope, the cycle will not end.

Every Cycle Ends in the Beginning of a New Cycle

In this ever increasing realm of fear and uncertainty, we have to remember that the ending of each cycle is also the beginning of the next cycle. It is true that we have unsustainable debt, that Europe is in crisis, that the US housing and job reports are dismal, that China is slowing, and all of the rest.

It is also true that as the current cycle grinds to an end, that the new cycle is beginning, as it always does. Technology and communications are advancing at an unprecedented rate. Our world is changing faster than it ever has before. Millions of new consumers demanding goods and services are being created. As the baby boomer age draws to a close, new generations are maturing and becoming consumers and innovators. There are more ships than ever before, more telephones than ever before, more consumers than ever before, faster dissemination of information than ever before, and so on.

Timing Entry into the Stock Market

There have been many studies and reports on long term investing in the stock market. Generally they say that an investor can expect 3% to 6% return annualized, but the true returns, in reality, depend on the inflation factor, and more importantly, on the timing of the investment. If investors had great patience, did not buy and hold through all cycles, did not buy when the media was excited about the stock market, but instead bought only when everyone else was cowering in fear and ignoring the stock market, and sold after the cycle hit its zenith, the Return on Investment would have been stellar.

The conclusion is that now is the time to consider investing. Perhaps the market will fall some more. Perhaps not. Perhaps the Euro will be abandoned. Perhaps not. Perhaps China will start having bumps in its road. Perhaps not. One thing is for sure. Whether it be because of a change in the price of energy, or a new technology, or a new way of doing business, or because of something else, the next cycle will start shortly. Stay tuned.