Unless you have been on a deserted island with no form of communication, you would know that there is a lot of scare mongering around the possibility of another stock market crash.
Some people call it “terrible October” while others refer to it as “red October”, but any way you look at it, Oct. 2018 has continued to live up to its reputation as one of the most volatile months in the stock market.
Oct. has had a long reputation of being a down month in the market given that previous significant crashes have occurred in this month including the great crash of 1929 (black Tuesday) and black Monday in 1987.
To this day, we continue to be reminded of these crashes, which is why people are so wary when Oct. rolls around. But should we be concerned or is the current bearishness just the market being normal?
So far Oct. has produced a new all-time high on the Dow with the S&P having an all-time high in Sept. Charles Dow, founder of the Dow Jones Index, said that for crashes to occur we need to see rampant speculation in the market with hordes of inexperienced investors jumping into anything that is moving at increasingly higher rates.
We also need to see record levels of borrowing to invest and investors moving into mutual funds.
Whilst consumer debt is up, I believe it is more a sign of a good economy and not rampant speculation from individuals borrowing to get into the stock market or to invest in mutual funds.
If we consider the new inflows into mutual funds, the levels have decreased over the past couple of years.
Looking at the market from a technical perspective, we have more than 200 years of market data that proves the stock market has cycles of 80 to 90 years, with the last major cycle low occurring in March 2008, which is also known as the GFC low.
Prior to this, the major lows occurred in 1932 (the 1929 crash), 1842 and 1762. Out of the 1932 low, where the Dow had fallen 90 percent in price between 1929 and 1932, the Dow rose for 56 months and 382 percent in price before falling 50 percent into a low in March 1938.
During this time, we first experienced a depression and then the 1937 recession, which caused the fall into the low in 1938. The next major fall for the Dow did not occur until the 1970’s, where it fell just over 30 percent.
The move out of the 90 year low that occurred in 2008 has been quite different to the move up from the 1932 low in that we have seen the market rise 115 months and 316 percent, so the rise has been steadier rather than the euphoria experienced in 1932.
We have also not seen a depression, and a short-lived recessionary environment. Once the dust settled after the GFC, the economy started improving to now being strong and indicating that a continued rise in the market is likely sustainable.
Given that we are a mere ten years on from the last 90 year low and the next one is not due until the end of this century, right now I believe we are seeing a normal market adjustment to the current longer-term bull market.
Therefore, my expectation is that any fall on the Dow will be in the vicinity of 15 to 25 percent from its all-time high with support between 22,000 and 21,000 points.
We also need to be cognizant of the fact that for a market to crash to occur we need to see fear and panic, which is fueled by widespread concerns over leveraging by consumers and as previously mentioned, we have not seen this in the stock market, but what about leveraging in the housing market, which was the major cause of the GFC.
While there is some justification for concern in the housing market, it is more around availability given that not enough new housing is being built to handle the growth in the population.
Most of you will remember all the talk in 2007 was about dubious mortgages and lending practices and at the time interest rates were over 3.5 per cent, well above today’s level of 2.25 percent. So, in summary we are not seeing large scale stress in lending for housing.
I have often said that if the majority are suggesting that a crash is imminent, then the market will not crash.
This is because those who are likely to panic would have already sold out and the big end of town would have battened down the hatches and adjusted their portfolios.
The process of protecting portfolios from downside risk has the effect of slowing the market as the re-weighting of portfolios occur, and while over the past weeks we could say there has been signs of this, it has not been widespread over many months, which indicates that the big end of town are not too worried.
Investors are known for following the herd and making reactive decisions, rather than being proactive, and it is well known that the herd get it wrong most of the time when it need not be the case.
INFOGRAPHIC: How To Invest Your Money (In 8 Simple Steps)
Plenty of savers are making do with low rates of return on their deposits—almost eroding the value of their savings. Here’s a guide on how you should invest your money and gain some great returns off it.
Stock Trading: How to Choose the Best Online Brokers
Stock trading can be a risky business but done right it is an extremely lucrative investment option which yields excellent returns. It is true that trading is quite intimidating for someone who is new to the market and its ways which gives rise to the need for a good stock broker who can handle the job and ensure that the client gets the best returns possible for the money he or she is investing. But as a new investor it is absolutely important that you choose a very good trading broker. Here are some tips that will help you make that choice better.
Understand your trading needs
Before you even look into the services of a trading broker, it is essential that you are aware of your goals and needs from your stock trading. Firstly, prioritise your investment value, short term and long-term goal, and time that you are willing to spend on your trading in order to figure out where you stand. Now, narrow down on the specific kinds of stock exchange that you are looking into. With the wide variety of options available that you can choose from, it is important to narrow down to the specific field or fields and finally look for brokers who suit your specific needs.
Have a clear talk about trading fees
It is important to have a clear-cut discussion on brokerage fee and commissions that your broker will charge you. Ask about the charges per transaction, basic account charges, account minimums and even reimbursements if and when you choose to part ways so that you can have a proper idea about how much you are about to fork out for your trading. It is a good idea to have the talk beforehand so that you do not get into an arrangement which later becomes financially burdensome for you.
Look up reviews on the broker
You would not buy a new product without checking what its previous users have to say, right? Similarly, look up your prospective brokers No matter how promising or lucrative a broker seems with the terms, make sure you check the reviews by InvestinGoal to ensure that you are actually getting a good deal and not being sweet talked into not a good broker or even worse, being conned of your money.
Ask your questions
Do not be afraid to ask whatever questions that come to your mind before you make a deal. This will help you understand your trading better and thus, to get the absolute best out of your investment. It will also help you uncover any hidden charges, non transparent clauses as well that might have later hindered the desirable growth of your stock.
Give a test run
Ask the broker if you can give a test run of your account, and his technology before you actually invest your hard earned money. Many brokers allow you to create a free account which you can use to test their platform and check out user friendliness, ease of trading, quality of tools etc and thus, make an educated decision.
Getting the right broker is definitely one step towards a good stock trading investment. Therefore, it is very important that you take utmost care in picking the very best broker for your trading needs.
3 Simple Steps To Build Your Investment Portfolio
If you’re starting out with planning your investments, chalking out your goals and how you’d like to achieve them is incredibly important. You’ll need to understand what kind of assets you’d like to invest in–be it exotic instruments like private equity or the tried and tested ones like the treasury bonds, ETFs and stocks–and invest right. Here are three key strategies to build your portfolio:
1. Building Wealth Is All About Thinking Rationally (And Smart)
Having the right mindset can play a huge role in how you build your investments. It’s simply not just about strategy. To ditch following the latest fad in the market, you need to be responsible and have a sense of social indifference–coupled with confidence and patience.
2. Invest Like A Cheapskate
If you’re pumping in $150,000 as investment, on which you incur 1% as fees, look out for ways through which you can cut them down.
If you were to cut costs by a little more than a half, that’s saving you at least $1,120 in fees every year. But that’s not it–when this saving is compounded every year, that 1% fee can tally up to a million (if saved, could win you your big ticket to becoming a millionaire!)
3. The KISS (Keep It Simple, Silly) Rule
Funnily enough, most of us think investing your way through millions demands extensive knowledge of financial instruments or strategies. Surprisingly, it’s the simplest of assets that gave the biggest investors their biggest wins. Many successful investors highlight their success to stocks, bonds and other popular alternative investments, patiently held over time.