Conversation about... Debt Crisis

Opinions vary on how bad the debt crisis will get. Some think that the debt problem will worsen and that it will cause a bad recession and that the stock market will fall. Others say that the worst is behind us… that the market has factored in the bad news and that while more bad headlines will be forthcoming, the worst is behind us with regard to the economy and the stock market. There are many other smart folks with opinions somewhere between the doomsday and the optimistic outlook. We do not know what will happen and we think that no one does know. There is no shortage of folks with an opinion, though. The debt crisis could worsen and pull us into recession and cause a bad market. The debt crisis could clear up, we could avoid recession and the market could surge.

We think it makes sense to own a portfolio that is appropriate for your age, your risk tolerance and your need for return and to stay the course. This means not trying to get out of stocks in anticipation of a fall or try to load up in anticipation of a surge. What if what we anticipated does not happen… then what do we do? We get out because we think it is going down but then watch it go up 20%... do we get back in then? We will always be scared about something. Remember back in Feb/March of 2003 when the US was pounding the drums about invading Iraq and the market was falling everyday? By March, the S&P was down 45% from its peak of March 2000. The last thing you felt like doing was buying stocks… we were going to war against folks who had chemical weapons. The headlines were quite scary, much as they are now. Gloom and doom. But the best thing you could have done in March 2003 was buy stocks. The day we went into Iraq, the market started going up. Those stocks are up 90% since then.

So we do not know what will happen with this credit crisis, but as usual we are sticking with our normal advice. I hope this helps.