I wrote this article on March 6th, 2012 for my Golden Valley Patch Blog.
Back on December 15, 2011, I wrote about how important the basic economic laws of supply and demand affect your company 401(k) retirement plan. You can read that blog post here.
I wanted to revisit the supply and demand concept again because of the dramatic rise of the stock markets since the first of the year. There seems to be no end in sight for the rising stock markets so far in 2012.
The many financial experts on the internet and financial television always take a positive tone in their daily stock market commentary. The truth is that these people have no idea what economic and political events will shape the world over the next five hours, five days, or five months.
Stock market and economic predictions are never offer any meaningful value. Even if you know of someone who correctly predicted the stock or bond market movement over a short period of time, you will only find that out after-the-fact. And that same person will never admit to you how many times their stock market predictions were dead wrong.
Historical information is the basis of much of the financial media and stock market commentary every day. The problem is that you can’t preserve and grow the value of your company retirement plan account with historic information.
When you drive your car, do you spend more time looking out the front windshield or the rear view mirror? The same question can be asked about the importance of historical investment information.
The best investment management decision in volatile economic times comes down to what to own in your 401(k) retirement plan. As the U.S. stock market times change, you have to be able to change along with them.
The cyclical changes in the supply and demand for stocks and bonds will allow you to make the best investment management decisions in the future.
Prices of the major U.S. stock market indices found a bottom in early October. Since then prices have gone up. The reason the price of anything rises is that there are more buyers than sellers of that good or service.
At some point in the future, the buyers will stop. You can make the argument that the across-the-board buying all U.S. stocks has already stopped at this time; or at least slowed down.
The next major stock market event is when the sellers of stocks will take control of the short-term movement of stock prices. When that happens, stock prices will go down; often more quickly, and more broadly, than they recently rose in price.
The most investment management decision in your company 401(k) plan is that you make the necessary adjustments as the U.S. stock and bond markets change. Your reaction to the change in the supply and demand equation for stocks is most times the best investment management decision you can ever make.
Ric Lager
Lager & Company, Inc.
