Another Worthless Poll To Scare You Into Reading Articles
A Wells Fargo/Gallup poll is making its way through the financial media, and is being used to suggest a stock market plunge is coming. The poll surveyed a little over a thousand investors with investments of $10,000 or more. The dire results: 54% of U.S. investors anticipate a stock market decline within the next year wiping out “significant gains.”
Polls of Investors Do Not Predict the Stock Market
The theme of the articles range from “the poll is interesting” all the way to “the poll predicts another massive recession.” The fact, however, is that polls like these, and investors in general, are terrible at predicting the future movements of the stock market.
This Same Poll "Predicted" A Previous Bear
This poll has been taken in previous years, with similarly “dire” results. During 2013, 62% of respondents expected a downturn, and again in 2014 the poll had 58% of people expecting a market downturn. With two years in a row showing 60% of investors to be bearish, one would think the years to follow would be horrific.
The Stock Market Disagreed
The market, however, didn’t pay much attention to the poll nor the financial media reporting on it. The S&P 500 gained 32% in 2013, 14% in 2014, 1% in 2015, and 12% in 2016. All together, the market gained an annualized return of 9.25% per year for the four years including and following the negative polls.
A Coming Bear Market is Possible
This is not to say the market won’t drop next year. It is entirely possible a market correction or even a recession might be coming. But it won’t be a Wells Fargo/Gallup poll of a thousand investors which predicts it.
Your Response: Ignore the Drop (and the Polls)
And if the market does drop, you should do exactly nothing. Assuming your portfolio is invested appropriately, you should expect market gains and losses. If you can’t handle a market downturn next year because you need the money, then your money shouldn’t be invested in stocks.
If you are invested in the stock market, you should be invested for the long-term with a long time-horizon for the money. If this is true, ignore the market predictions and enjoy the ride.
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Joshua Escalante Troesh is a tenured professor of Business at El Camino College and the founder of Purposeful Finance. His career includes having been a VP at a financial institution leading up to 2008, and involved with technology and internet stock research leading up to 2000. He can be reached for comment at firstname.lastname@example.org