Turn back the hands of time for me. Go all the way back to May 30, 2019, one year ago.
Let’s say you were at a big group gathering, the kind no longer permitted. One of your good friends, who happens to be a brilliant scientist and engineer, walks up to you and says, “I just got back from the future.”
Naturally, you are skeptical. But the longer your friend talks, the more you believe him. Your friend explains that he built a new-fangled time machine, and it transported him to May 30, 2020, one year into the future. And while he was there, he grabbed a newspaper.
To your astonishment, your friend pulls out from his back pocket a newspaper from the future. And the front-page article tells a terrible tale.
As you read the article, you grow fearful. The article explains the world has been crippled by a microscopic enemy called the coronavirus. Thousands of lives have been lost. Small businesses have been shut down. More than 40 million people have filed for unemployment in a matter of 10 weeks. Airline travel has been ground to a near halt. All major league sporting events have been cancelled. And that’s just in the United States. The rest of the world is facing an equally devastating reality.
You read through the rest of the newspaper for further clues for what the future holds, but all you find are stories about local government, crime, and national politics.
You ask your friend if he knows anything else about May 30, 2020.
“No, unfortunately,” he explains. “The technology in my time machine was pretty crude, and I was only able to stay long enough in the future to grab this newspaper. And now I can’t seem to get the time machine to work at all.”
That night you go home, and you can’t stop thinking about what you read. The world is soon going to be a far different place, you think to yourself.
Then it hits you.
What about your investment portfolio? No one else knows the economy is about to get smacked with a two-by-four. You have the perfect opportunity to prepare.
The next morning, May 31, 2019, you sell your stock investments and vow to keep the money in cash for the next year. Your money is safe. This, you say to yourself, will be one of the finest financial moves of your life.
In fact, it would have been just the opposite. As it turns out, holding cash throughout that year would have been harmful to your wealth.
In reality, the U.S. stock market went up – up! – 12.8% with dividends included over the next year. Yes, those are the actual results from May 31, 2019 to May 30, 2020. Despite the headlines, despite the sad state of affairs, despite knowing something no one else knew, you still would have played it wrong.
I’ve said it before. Investing is hard. It can make smart people look dumb, and it can make lucky people look smart. There is no formula. There is no predictable sign.
So, back to the title of this article. Where does the market go from here? It depends. Most people asking that question are thinking about the next week, month, or year. With those timeframes, your guess is as good as mine.
Those timeframes, though, also happen to be meaningless for almost every investor. We often don’t want to believe that, but it’s true.
Over time, the market will go up. It will do so in lurches and leaps. But it will go up.
Knowing that – and more importantly, truly believing that – is far more important than attempting to divine where the market will go over the next week, month, or year.